Getting a mortgage during chapter 13

Most people think of bankruptcy as liquidating assets to pay off debts before any remaining balances are discharged. However, a Chapter 13 bankruptcy is about creating a court-ordered plan to pay off your debts. With Chapter 13 you have at least some income, but there is no reasonable way you can pay everything you owe. It can also help stop impending collection actions, including foreclosure.

Chapter 13 bankruptcy allows you to repay part of what you owe through a court-ordered payment plan. The payment plan usually lasts between three and five years.

The filing fee for Chapter 13 bankruptcy is $335, but if your income is low enough, you may be able to file to waive this fee.

Attorney fees are usually included in the monthly payment plan, so there is no need to make a large investment upfront.

When you officially apply, an automatic suspension is placed on your accounts. This means collectors can no longer call you directly. It also stops wage garnishment and foreclosure actions.

The Challenges of Filing Chapter 13

Although you might think it’s easier to get creditors to agree to a tight payment plan than it is to get your debts discharged, the opposite is often the case.

Chapter 13 bankruptcy may provide some protection for your assets, especially insured assets such as your mortgage. However, if you default on your regular payments, your mortgage lender can simply ask the court to release the home from bankruptcy protection. If they do, foreclosure may still take place.

The biggest challenge of a Chapter 13 bankruptcy is the time it takes to complete it. Making five years of payments can be challenging. In that period of time, unexpected situations can make you unable to afford the payments. A medical problem, job loss, or any other matter beyond your control may arise.

A report from the Federal Reserve Bank of Philadelphia found that only a third of Chapter 13 bankruptcy cases result in discharge. This figure comes from multiple studies in various districts The same study found that 8% of Chapter 13 cases converted to Chapter 7. In some US judicial districts, failure and conversion rates are much higher.

Given these high failure and conversion rates, a Chapter 13 payment plan should not be entered into lightly. It is important to consult with a qualified bankruptcy attorney to make sure it is the best option for your finances before agreeing to a court-ordered payment plan.

Talk to an expert to make sure a Chapter 13 filing is your best option for debt relief.

When Chapter 13 may be the best option

A Chapter 7 bankruptcy is often better for the lender, but what about you? Not surprisingly, it’s Chapter 13.

It is usually the best option if…

You have significant personal wealth and you don’t want to lose it to liquidation, foreclosure, or repossession. A clear example is if you have a large amount of equity in your home. On the other hand, if you have a reverse mortgage because of a market crash, you may not care if that asset is liquidated.

You have a stable income, but unsecured debt payments are destroying your monthly finances. If all your money problems are due to excessive debt and delinquent credit card accounts, adjusting your payment schedule can put you in a better position without risking your assets.

You will want to protect yourself from your creditors, but you make too much money to file a Chapter 7 bankruptcy.

Chapter 13 Filing Requirements

Filing for Chapter 13 bankruptcy has some pretty strict requirements that you will need to meet in order to get the ruling you want.

Your total unsecured debt must be less than $419,275.

Your total secured debts must not exceed $1,257,850.

You must have been a resident of the state in which you wish to file for at least 2 years.

You must complete a pre-filing bankruptcy counseling session with a court-approved certified counselor within 180 days prior to the filing date.

There are some other specific requirements for certain situations and you may also have specific requirements for your state. It is recommended that you hire a bankruptcy attorney to ensure that everything goes according to plan.

What to Expect When Chapter 13 Files

Once you have completed your pre-bankruptcy counseling session and formally filed, the courts will issue an “automatic stay.”

This prevents creditors from taking any action against you to collect your debts; in most cases, they are even prevented from calling you back, so no more calls from collectors. All lawsuits and wage garnishments are also stopped.

The bankruptcy clerk sends notices of the filing to all creditors and lenders listed on your filing (you must provide any contact information you have). A means test is performed in accordance with the guidelines set forth in the BAPCPA. This determines that you are eligible to file a Chapter 13 filing.

More advantages with Chapter 13

In addition to getting the relief of not having to dodge phone calls and hide from your creditors, you can get some distinct advantages from filing Chapter 13. They don’t make a good filing, but at least they help you get the most out of a bad situation.

You can save your home from foreclosure. The automatic stay also applies to foreclosure proceedings, so the foreclosure process stops when the automatic stay takes effect (and stays until you complete your payment schedule). If you want to keep your home, you will have to make the full monthly mortgage payment. However, you can write off late payments over time in the plan.

Freeze interest/tax penalties. If you’ve been late on your taxes, the IRS has some pretty tough penalties that apply to what you owe. Filing the declaration prevents further sanctions from being added.

Protects cosigners if they have secured a debt you owe. You can affirm a debt and pay it off through your Chapter 13 payment plan, saving your cosigners from facing collection actions.

It acts as a consolidation program. You make a monthly payment to the bankruptcy trustee and it is divided among your creditors.

Start the filing process, so you can get the fresh start you need.

Why do you need help filing bankruptcy?

If you need to save your home or have other assets that you want to make sure you protect, then you need a little help filing Chapter 13 bankruptcy. Even if you decide to go through the process alone, you will be required to take the credit counseling course before you can file.

Filing for bankruptcy is a legal process. Unless you know what you’re doing and are experienced with the process, you can inadvertently make serious mistakes in your filing documents. There is no better help than seeking the advice and representation of an experienced bankruptcy attorney in filing for Chapter 13 protection.