Chapter 13 Bankruptcy: A Great Tool To Save House From Foreclosure

Central Valley California -- There are primarily two types of personal bankruptcy that you can file under the Code:  Chapter 7 and Chapter 13.  Chapter 7 is a great tool to get rid of credit card debt.  But if you are behind on house payments, Chapter 13 is the best tool to save your house from foreclosure.

Chapter 13 bankruptcy is considered the repayment plan.  The goal is to create a plan that is approved by the bankruptcy court to repay creditors over 36 or 60 months.  

Let's say that you are $10,000 behind on mortgage payments.  Your lender sends out a foreclosure notice saying that you have 90 days to cure the default.  In other words, you have to pay the lender $10,000 in 90 days.  If you do not, then the lender can foreclose on your ownership interest in the house.

Chapter 13 bankruptcy protects homeowners from the 90 day pay, or be foreclosed scenario.  By filing Chapter 13, you can propose a plan to the court that extends the 3 months foreclosure to 60 months.  It works out that instead of paying an additional $3,333.33 to catch up on payments, you can lengthen payments so that you only have to pay $166.66 dollars per month.

You will have to also make your regular monthly mortgage payment.  Also, do not forget about attorney fees and trustee fees for advising, preparing and administering the plan.  Presently, trustee's command a 6% commission and attorney fees are approximately $4,000.  These expenses are incorporated in the plan payment.  Expect the extra $166.66 plan payment to increase to about $220 per month.    

Chapter 7 bankruptcy will stop a foreclosure sales date, but only temporarily.  Chapter 7 bankruptcy in itself does not create a plan to repay past due mortgage.  A homeowner will be left with hopes of modifications, but this is not guaranteed and can result in the continuation of the foreclosure shortly after filing chapter 7 bankruptcy.