Despite the lull in foreclosures at the end of 2011 while the banks dealt with the fallout from the “robo-signing” scandal, now that the banks have settled their legal troubles with the government in the national foreclosure abuse settlement, they are free to begin foreclosures again — and recent foreclosure data indicates they are beginning to do so. Experts predict that foreclosures will increase again in 2012. Those struggling to pay their mortgages may want to consider Chapter 13 bankruptcy as an option for saving their homes from foreclosure.
Only individuals can file for Chapter 13 bankruptcy; corporations and partnerships are ineligible. In order to qualify for filing Chapter 13, a person needs to have less than $360,475 in unsecured debt and less than $1,081,400 in secured debt. The government adjusts these figures periodically to keep up with inflation.
Chapter 13 is often called “wage-earner bankruptcy” because people filing this type of bankruptcy usually have steady income, which they use to repay a portion of their debts in monthly installments in a repayment plan. If the debtor’s income is less than the median income for the state, the repayment period will be three years long; if the debtor makes above the median income, then the repayment plan is for five years.
One of the biggest protections that filing bankruptcy offers to debtors is the automatic stay on collection actions — including foreclosures. Once a person files a bankruptcy petition, creditors can no longer take any actions to collect on debts the filer may owe; they need to wait and negotiate with the trustee to ensure that creditors receive money in order of priority.
Once a person files Chapter 13, he or she has the opportunity to cure delinquencies in the mortgage and become current under the repayment plan. In some cases, filing a bankruptcy petition will be an impetus for a mortgage lender to renegotiate terms of a mortgage, such as reducing monthly payments, rolling delinquent payments back into the principal or extending the payment schedule.
Under certain conditions, Chapter 13 may even eliminate a second mortgage on a home.
Consult an Attorney
Deciding to file bankruptcy is a big step, and one that a person should not take lightly. A person considering bankruptcy to save a home should contact an experienced bankruptcy lawyer to learn about all of their options and whether bankruptcy is the right path.