My House Is Going Into Foreclosure: Can I File Chapter 13?
- Once you file for Chapter 13 protection, your lender should immediately stop taking action to foreclose on your property. If it hasn't filed for foreclosure yet, the law prevents it from doing so after you've filed. Even if the foreclosure process has moved relatively far along and a sale date is scheduled for your property, the sale can be postponed long enough for you to take stock of your debts and submit a repayment plan to the court. Once your plan is approved, your mortgage holder is obligated to honor it unless you default.
- Under Chapter 13 bankruptcy law, your trustee rolls all your past-due mortgage payments into the lump sum of debt you intend to pay back over the life of the plan, usually three to five years. If your mortgage is $2,000 per month and you're behind four months, the U.S. Bankruptcy Code treats this $8,000 the same as your unsecured debt. Your trustee apportions the payments you make each month with your disposable income among all these creditors. Your disposable income pays them off a little at a time during the term of your plan.
- To qualify for a Chapter 13 plan, you must have enough income to make your current mortgage payments after the past-due payments are swept aside and reallocated. You must also have enough income left over after you make your current mortgage payments to fund your plan. If your regular and necessary monthly living expenses and take-home pay are both $5,000 per month, the court may force you to file for Chapter 7 instead. Depending on how many creditors you have in addition to your mortgage company, you might not earn enough to make your current mortgage payments plus any meaningful contribution toward the past-due payments and your other debts.
- If you're late on your mortgage, take honest stock of how likely you'll be able to catch up on the payments without seeking bankruptcy protection. It's better to file for bankruptcy at the first hint of a problem, rather than wait until the last minute. If your lender has scheduled your home for a foreclosure sale on May 15 and you don't file for bankruptcy protection until May 1, it might be too late to forestall the process in some states.
- If you again fall behind with your mortgage payments while you're involved in a Chapter 13 plan, you might lose your protection against foreclosure. Your mortgage holder can file a motion with the court allowing it to move ahead with the foreclosure proceedings despite your Chapter 13 protection, because you have technically defaulted on your repayment plan.