For homeowners, bankruptcy can be one of the scariest things to face. It is often seen as the last resort for people facing down multiple debts that are beyond their means to pay back. But in many ways, a Chapter 13 bankruptcy can be a lifeline to homeowners who are facing foreclosure. Chapter 13 bankruptcies are also called the wage earner’s bankruptcy. That is because it allows people with a regular income to create a plan to repay most, if not all, of their debts. The best use of this type of bankruptcy is to take three to five years to pay off debts in regular installments, and doing so can allow you to keep your property for both the short and long term.
Relevant Types of Debts that Require Management
One type of debt worth looking at is secured debt. This type of debt is one where you have received a loan to purchase a big-ticket item and the seller receives a note, or mortgage, on the property. With mortgages, you would be able to put the missed payments, otherwise known as arrearage, into a payment plan with the possibility to pay it off over time. You are required to continue paying your monthly mortgage during this time, while your Chapter 13 trustee manages your back payments.
Chapter 13 Bankruptcy “Automatic Stay” Provision
Whatever you are able to accomplish when you obtain a discharge through Chapter 13 bankruptcy, filing for one effectively pauses the foreclosure process by way of the ‘automatic stay’ provision. This provision allows debtors some relief from collection efforts, including mortgage lenders. Now, the foreclosure process won’t come to a complete stop, but you will gain some breathing room until your negotiated payment plan is scheduled and accepted by the bankruptcy court.
This is not a process that creates a clean slate for debtors, in that it is not a fail-safe method to keep your home. It cannot reverse portions of the foreclosure process that have already gone through. For example, if the mortgage lender has completed a foreclosure sale prior to the bankruptcy being filed, then the foreclosure auction will still take place. Additionally, an automatic stay does not protect you from any consequences associated with missing any new payments during your Chapter 13 repayment period. You need to keep up with your payments in order to avoid having the lender file a petition to move forward with the foreclosure process.
Filing for Chapter 13 Bankruptcy in Alabama
This process is uniform across the state, and the things that your bankruptcy attorney will look at includes
- Disposable income (what you can afford to pay towards your debts each month)
- The amount and types of debts you owe
- Whether or not bankruptcy exemptions will protect the equity of your assets
- The length of your bankruptcy plan
- Any recent financial transactions.
With all of this in mind, if you are able to meet certain conditions, put in the work, and keep up with your monthly payments, then you have a good chance of being able to keep your home. As we have seen, there are caveats, but if things are handled properly then your chances will certainly improve.