Life can be unpredictable, so it is essential to be able to face adversity with a creative, resilient mind. When you have a mortgage on your home, and the income stops coming inconsistently, this can create problems and fear in the heart of the homeowner. As soon as the homeowner starts missing multiple mortgage payments, foreclosure proceedings are likely to take place.
The mortgage holder usually gets this process, which includes a notification to the homeowner. Because the foreclosure process is drawn out, it gives the homeowner more time to utilize resources to keep the house. Homeowners can do one of the following:
- Start to organize a short sale
- Create a deed in place of a foreclosure
- Conduct renegotiations of the loan
- Filing for bankruptcy
In this article, we uncover a worthwhile option to save your home and avoid foreclosure. This option includes filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy is the perfect option for someone who gets behind on mortgage payments because of a temporary financial setback. If you are confident that you will resolve the setback problem soon, then the chapter 13 route will keep you afloat.
We will uncover your options with this route, the difference between Chapter 13 and Chapter 7 bankruptcy, and the process you can take to save your home.
What is Chapter 13 Bankruptcy? And How Does It Relate to Foreclosure?
Chapter 13 bankruptcy is an excellent option in freezing a mortgage. It enables you to set up a 3-5-year payment plan where you can repay all or a smaller portion of your debts. Using chapter 13 bankruptcy to avoid foreclosure is useful because you earn the right to keep your property in exchange, including your car.
But how does bankruptcy avoid foreclosure? This type of bankruptcy is useful in freezing your mortgage because you are technically paying off the mortgage “arrearage,” which means late or unpaid payments. In exchange, you can keep the house and continue making monthly payments as if the foreclosure was never a threat to you. This arrangement also enables you to catch up on past-due payments.
Requirements for a Successful Chapter 13 Bankruptcy to Avoid Foreclosure
If you want to be successful in freezing a mortgage, you must make sure that your creditors will receive as much money through chapter 13 as they would through the route of chapter 7 bankruptcy. You will also be successful in freezing a mortgage if you make enough income to satisfy your current mortgage payment and the arrearage payments too.
You also want to make sure that you do not file the bankruptcy too prematurely. Instead, you should investigate other options that will help modify your payments, which will help in freezing the mortgage. It is also essential for you to budget time to partake in the required credit counseling, which is to get done with a certified credit counseling agency. You must complete this before officially filing bankruptcy.
What is the Difference Between Chapter 13 and Chapter 7 Bankruptcy?
The main difference between these two bankruptcies is that chapter 7 could help in delaying a foreclosure, but chapter 13 could help in freezing a mortgage and eliminating foreclosure permanently. Through chapter 7 bankruptcy, you approach the bankruptcy court and ask to discharge a lot of the debts that you owe. Then, the bankruptcy trustee has the right to retrieve any of the property that you own.
If you have an ample amount of equity in the house, the bankruptcy trustee may use the funds from the sale of your home to pay back the unsecured creditors. For this to occur, the lender needs to gain permission from the bankruptcy judge to proceed with the foreclosure process.
Selling a Home During Chapter 13 Bankruptcy
There might come a time when you are no longer able to afford the future months’ mortgage payments. While freezing a mortgage might have worked before, you will no longer receive benefits from bankruptcy’s immunity from past delinquent payments.
The process of bankruptcy does allow you to proceed to sell your home in an organized fashion. That way, you can still retain your equity and avoid the headaches of a foreclosure sale. This sale of the house will only be valid if the final sale price satisfies the payments to the mortgage lender and the other creditors.
There will always be obstacles in our life that prevent us from financial freedom and success, but it is all about how we respond in the face of uncertainty. It takes an internal belief that you can fix the issue that caused you to get setback financially. Combined with a chapter 13 bankruptcy strategy, you can catch up on your delinquent payments and move a step closer to achieving the life that you want to live.