Although the housing market is showing signs of rebounding, there are still thousands of homeowners who are having difficulties making their monthly mortgage payments. Whether because of adjustable rate mortgages with high interest rates or from prolonged unemployment or underemployment, if you are a distressed homeowner looking for options, Chapter 13 bankruptcy might be your answer.
No homeowner wants to go through a foreclosure, which means losing your house and probably any accumulated equity. Filing a Chapter 7 may put off foreclosure for a time because of the automatic stay on all legal proceedings that goes into effect, but the lender will simply obtain an order lifting the stay and continue with any foreclosure actions.
A Chapter 13, however, also puts into play the automatic stay of all civil proceedings but it allows you to keep your home and other real estate so long as you can make a monthly payment and can satisfy your business plan’s goals of repayment.
Like a Chapter 7 filing, you must list all your assets and debts. You are not discharging your unsecured debt, as in Chapter 7 case, but paying your creditors over a 3-year or a 5-year period.
Can You Qualify for a Chapter 13?
Your main obstacle to saving your home to foreclosure is the amount of your arrearages. You may be several months behind in your mortgage payments but are able to meet most of your other obligations. To fend off foreclosure, the lender will typically send you a letter demanding immediate payment of all arrearages in a lump sum, but this is unrealistic. Under a Chapter 13, you can spread your payments over 36 or 60 months, which must include the current mortgage payment and a portion of the arrearages.
You can also pay your unsecured creditors less than what you owe them so that more of your payment can be directed toward the mortgage lender.
To qualify for a Chapter 13, you do have to meet certain criteria:
You are an individual and not a business entity.
You did not discharge any debt in a Chapter 7 in the past 4 years or in a Chapter 13 in the past 2 years.
You did not file a Chapter 13 or a Chapter 7 that was dismissed in the past 180 days.
You have completed a class with an approved credit counseling agency at least 180 days before filing for a Chapter 13
There is a limit on your debt: it cannot be more than $383,175 in unsecured debt and more than $1,149,525 in secured debt. These figures change every 3 years.
Filed your income taxes for the past 4 years.
If you have satisfied these requirements, you still must present a reorganization plan that provides that certain debts be paid in full including child support, spousal maintenance and non-dischargeable taxes; secured debts that must remain current during the repayment period; and be able to pay off tax or judicial liens, if any.
What is more important, you must have enough income for your debt obligations after you have deducted your monthly expenses. You can include income from any source, including that of your spouse even if he or she has not filed jointly.
Many distressed homeowners with steady incomes can meet the income requirements and the debt ceiling amounts. If you are in arrearages and facing foreclosure with few other options available, talk to a bankruptcy attorney about how a Chapter 13 might be right for you.