Filing for Chapter 13 bankruptcy should be your last resort after you fail to settle your debts despite exerting all efforts. If you want to save your home after receiving a foreclosure notice from your bank, you can still do this. A Chapter 13 can prevent foreclosure and allow you to settle your mortgage default before your lender decides to sell your residential property.
When a borrower files for Chapter 13 bankruptcy, a lender is prohibited from proceeding with a foreclosure sale. An automatic stay takes effect which disallows creditors from collecting money without court permission or in some cases, they will have to wait until the bankruptcy case is closed to continue with the process. What this means is you still have every opportunity to save your home from being foreclosed.
What Happens to Your Debt?
With Chapter 13, you can set up a monthly debt payment plan that’s affordable to you and this would usually take three to five years. This option provides an opportunity for borrowers to settle their mortgage default and thereby, keep their homes. The five-year allowance to repay your debt is considered a very affordable way to cure your default, according to bankruptcy lawyers. But do take note that once you fail to make your payments, the bank or lending company could still take possession of your property, they pointed out.
During this procedure, a borrower can catch up on paying his or her pre-bankruptcy mortgage arrears or the amount you failed to pay in the past. Affordable monthly plan payments can be arranged with a bankruptcy trustee who, in turn, pays the lender the amount stated in your plan. Your payment plan will depend on the debt your owe and your disposable income and during this time, your automatic stay will be in place. This means that your mortgage company does not have the right to pursue any further action such as taking back your house.
Foreclosure rules vary by state and lenders are required to follow them. In certain states, lenders must first file a lawsuit in a state court to foreclose a home while in other states, foreclosure can be done without court involvement or what is known as the non-judicial procedure. Regardless, a lender is required to give a borrower plenty of notice about his default and should state that it wants to foreclose on the home. At the same time, the lender needs to wait for a certain period of time or obtain a judgment before it can set a date for a foreclosure sale. As such, you remain to the owner of your residential property.
Unknown to many, lending companies also want their borrowers to avoid bankruptcy as much as possible. It is, therefore, important to get in touch with your lender as soon as you fall behind your monthly payments including that for your mortgage. Your lender will then contact you either by mail or phone to provide help with regards to your situation. Make sure that you honestly tell them about the real reasons why you failed to pay your monthly dues and whether it’s a temporary problem or a long-term issue. This way, they can come up with a payment plan that suits your specific situation.