The biggest expense that most people have is their mortgage payment or their rental payment. In many cases, homeowners are reaching the limits as to what they can afford per month. Many people do not choose a house that they can afford but rather a house that they desire. For this reason, many homeowners are financed with adjustable-rate mortgages that will fluctuate based on current economic conditions. We saw this have a devastating effect during the recent mortgage foreclosure crisis of the past 10 years. However, aside from the mortgage foreclosure crisis, there are always a certain percentage of people who run into financial problems concerning their home.
So what are you to do if you have fallen behind on your mortgage due to illness, injury, divorce, loss of job or simply mismanagement of funds? You can decide to wait out the foreclosure process for the next year or two and then be prepared to vacate the property. If this were to happen, you may be liable for any deficiency remaining on your mortgage after Sheriff sale including tax consequences due to cancellation of debt. Depending upon your financial outlook, it may be your only realistic option. For many others, there is another option and oftentimes, a better option. What I am referring to is filing chapter 13 to save your home.
Chapter 13 bankruptcy involves an incredible set of laws which allows you to stop a foreclosure any time before a house has gone to a Sheriff sale. You do this by filing a petition under chapter 13 which creates the existence of the automatic stay. The automatic stay basically tells creditors that they are prohibited from taking further collection activities without permission of the bankruptcy court. Chapter 13 bankruptcy will allow a homeowner to reorganize the debt and pay back what they have fallen behind on over the next 3 to 5 years. This portion is known as the arrearage amount and it can be stretched out over a maximum of 60 months. During this repayment of the mortgage arrearage, the homeowner must begin to make the regularly scheduled mortgage payment once again. This can be a very daunting task to ask someone who has not made the mortgage payment recently to not only start making the regular payment again, but to also put something away towards the arrearage. However, it can be done and I have seen it done hundreds of times per year over the last 23 years.
You have to be realistic about your chance of success. You have to understand that if there was a reason you fell behind on your mortgage and that reason has been rectified, then you stand a much better chance of success than someone who simply fell behind due to mismanagement on their own. For example, if you were ill and did not receive your full paycheck for four months or six months and now you are back healthy, you may be back on track to make your payment. You also may have lost a job for a period of months and now you are back employed. Perhaps, you’re even making more money at your new job. If these are your scenarios, then there is a pretty good chance that you’re going to have success with saving your home through chapter 13. If, on the other hand, you simply could not afford your house before and nothing material has changed, you are not likely going to be able to afford your home now.
The first step is to sit down with a chapter 13 bankruptcy attorney to go through the interview process. The attorney will be able to advise you as to whether or not chapter 13 is feasible under your circumstances. The attorney will likely lay out a range of payments that will have to be made over the next 3 to 5 years to have success. The attorney will also look at your income in detail as well as go through your monthly budget and expenses. The attorney does not want to file a chapter 13 bankruptcy case for you if it has no chance of success. This is due to the fact that chapter 13 bankruptcy attorneys are typically paid out of your monthly payments to the trustee. Thus, for the attorney to be paid, you must be successful with your case. If you do not have the ability to repay, the attorney will likely recommend a chapter 7 fresh start where you eventually give up the property.
In addition to saving your home from foreclosure, chapter 13 may allow you to reorganize other debt such as auto payments, credit card bills, medical bills, personal loans, utility bills, and just about any other type of debt. For this reason, chapter 13 is a very powerful vehicle to help you get on top of your finances. Chapter 13 is a specialty under the bankruptcy law. Not every bankruptcy attorney is equipped to handle a chapter 13 case. Make certain that you interview several bankruptcy attorneys to get an idea of which one is best for you. For further information about chapter 13 bankruptcy, you can contact my office at 847-520-8100. I am a member of the American Bankruptcy Institute and I am involved in chapter 13 bankruptcy cases on a daily basis and I have been for over 23 years.