Some people feel too embarrassed to use bankruptcy to resolve their mounting debt, but the truth is that bankruptcy is a valid tool to help those with serious financial problems. You may even use this process to prevent your bank from foreclosing on your home if your financial troubles keep you from paying off your mortgage.
If you file for Chapter 13 bankruptcy, you can kick off a series of events that may secure your home and remove the danger of your lender selling off your residence.
Put a pause on foreclosure
When you file for Chapter 13, it immediately stops the foreclosure process through an injunction called the automatic stay. The bank cannot take any further action to seize your home while you are in bankruptcy. This grants you valuable time to put your finances back in order.
Catch up through a repayment plan
Through your Chapter 13 case, you propose a repayment plan to catch up on the missed mortgage payments. Repayment plans generally last from three to five years. The plan divides your total amount behind into affordable monthly payments on top of your regular mortgage payment going forward. You must also stay current on new mortgage payments as they come due.
Chapter 13 can also let you divert more funds toward your mortgage. While you cannot reschedule when you make payments on the mortgage for your primary home, you may stagger payments on other secured property you own. Additionally, you can seek a discharge of qualifying debts, which reduces what you ultimately owe.
Requirements and challenges
To qualify for Chapter 13, you need a reliable source of income and your total debt must fall under limits set by the bankruptcy code. You also cannot have previously received a Chapter 13 discharge within certain periods of time. Additionally, a failure to follow your repayment plan could result in a dismissal of your case.
The goal of personal bankruptcy is to help you restore your financial standing, not take away the home you live in. Even if Chapter 13 takes a few years to complete, the end result of keeping your residence and other valuable property can make the effort well worth it.