If you’re behind on your mortgage payments and facing the threat of losing your home to the bank, a Chapter 13 bankruptcy may offer a lifeline. It provides a structured approach to cure your mortgage default and get your monthly payments back on track by reorganizing your other unsecured debts — all while keeping ownership of your home.
One of the most powerful features of Chapter 13 is the automatic stay that takes effect immediately upon filing a petition. This court order puts a halt on all collection efforts by your creditors, including your mortgage lender. Foreclosure proceedings will be paused, giving you the opportunity to develop a strategy for financial recovery.
The core of Chapter 13 is a court-approved plan that calls for repayment of a portion of your unsecured debt over a three- or five-year period. This plan allows you to do the following:
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Catch up on missed mortgage payments — The plan incorporates your past-due mortgage payments and spreads them out over the course of the repayment period. This allows you to gt back on track and eliminate the mortgage delinquency, thereby saving your home.
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Resume current mortgage payments — You must keep up your ongoing monthly mortgage payments on time while adhering to the plan. Missing these payments can result in the automatic stay being lifted and foreclosure proceedings resuming.
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Reduce other debts — The Chapter 13 plan pays down most of your unsecured debts, like credit card balances, which frees up income to devote to secured debt like your mortgage and car loan.
Note that your Chapter 13 plan will require paying back your mortgage lender for the nonexempt equity in your home. This means any equity value not covered by the applicable homestead exemption.
The automatic stay remains in effect throughout the plan’s duration as long as you make all required payments on time. Upon completion of the plan, your remaining unsecured debt is discharged.
However, not everyone qualifies for Chapter 13 bankruptcy. The individual’s total debt must fall below a certain threshold set by law. Additionally, the debtor must have sufficient disposable income, after meeting basic monthly expenses, to make the required payments under the plan.
A skilled New York bankruptcy attorney can assess your financial situation, determine if Chapter 13 is the right course of action for you and guide you through the process. Your attorney can also help you create a realistic and achievable repayment plan that maximizes your chances of successful completion and retention of your home.
The Law Office of Gregory M. Messer PLLC in Brooklyn has decades of experience helping New York debtors protect their homes through Chapter 13 bankruptcy. Call 347-943-8475 or contact us online to schedule a free initial consultation and discuss your situation in detail.