Chapter 13 Bankruptcy

Chapter 13 bankruptcy is very different than chapter 7 bankruptcy. In chapter 13 bankruptcy clients enter into a 3 to 5 year repayment plan. During that time clients will pay an amount equivalent to their monthly disposable income to a bankruptcy trustee who in turn will distribute the monies to creditors in accord with the confirmed chapter 13 plan. After completing this 3 to 5 year repayment plan the client will receive a discharge that will eliminate certain remaining debts.

Why File Chapter 13 Bankruptcy?

1. You don’t qualify for chapter 7 bankruptcy.  To file chapter 7 bankruptcy clients with primarily consumer debts either (1) cannot have current monthly income that exceeds the median income for a household of their size in California or (2) must pass the means test.  If their income exceeds these thresholds they may have no other choice but to file chapter 13 bankruptcy in order to receive a discharge of their debts.
2. You have valuable property.  In chapter 7 bankruptcy clients lose property that cannot be protected by exemption law.  In contrast, clients can retain non-exempt property in chapter 13 bankruptcy as long as their chapter 13 bankruptcy plan satisfies the best interest of creditors test.
3. You have significant tax debt.  Clients can repay non-dischargeable tax debts at little to no interest in chapter 13 bankruptcy.
4. Foreclosure.  Chapter 13 bankruptcy allows clients to save their home from foreclosure and catch up on late mortgage payments over 3 to 5 years.

Home Loans In Chapter 13 Bankruptcy

The subject of home loans in Chapter 13 bankruptcy is something that many people want to discuss when they meet with a bankruptcy attorney.  One of the top reasons that people file under Chapter 13 is because they are behind on the payments for their home loans.  Some people may already be in foreclosure while others may only be a few months behind but foreclosure is looming in the near future if they do not do something now to prevent it.  Filing a Chapter 13 case can save your home and resolve your other debt problems at the same time.

Filing Chapter 13 Bankruptcy on Home Loans

When you file a Chapter 13 bankruptcy case, you must include all of your debts regardless of whether you intend to continue paying that debt — this includes your home loans.  If you are current on the payments for your home loan, you simply continue making the monthly payments outside of the bankruptcy plan to keep your home.  You also have the option of surrendering the home to the lender in satisfaction of the debt.  If the lender sells your home and does not receive the full payoff, any remaining balance will be discharged when you complete your case.  You will not be legally required to pay the deficiency amount.

If you are behind on your home loan payments, you can include the past due payments in your Chapter 13 plan to be paid over three to five years without interest.  Your mortgage lender cannot file or continue a foreclosure action even though the past due payments will not be paid immediately. However, you will need to resume making your regular monthly home loan payments outside of your bankruptcy plan and keep those payments current during the bankruptcy in order to keep your home.

If you are behind on your home loan payments, contact a bankruptcy attorney immediately to discuss your bankruptcy and non-bankruptcy options.