Chapter 13 Bankruptcy Law: For Homeowners

Chapter 13 bankruptcy law, often the debt management option of last resort according to the U.S. Federal Trade Commission (FTC), provides homeowners an opportunity to save their homes from foreclosure and reorganize their debts. However, people—including homeowners—must be eligible to file for chapter 13 bankruptcy.

Chapter 13 Bankruptcy Law Works by Allowing People to Repay Debts

Under chapter 13 bankruptcy, people agree to repay a portion or all of their debts over a 3 to 5 year period. The U.S. Bankruptcy Court approves a repayment plan which specifics the exact number of years people pay and the amount of money the will have to pay. The monthly payment depends on the amount of money they must repay back. Once confirmed, individual make monthly payments to a bankruptcy trustee who distributes the funds to creditors. Any remaining debts that eligible, according to Nolo, will be discharged after all payments are made.

An Automatic Stay Prohibits Creditors from Taking Property

The best part about filing chapter 13 for homeowners is the legal protection that accompanies the bankruptcy case. The automatic stay is a provision in the bankruptcy code which stops creditors from starting or continuing any attempts at debt collection—which includes foreclosures. This means that homeowners who are behind in their mortgage payments or who have been foreclosed on have one more chance to save their home. The only time an automatic stay doesn’t work is if the home has already been sold or auctioned off.

Chapter 13 Isn’t For Everyone—Even If They Must Save Their Homes

Chapter 13 is for people with regular income. So, the U.S. Bankruptcy Court requires individuals to qualify (through a means test) before they file for chapter 13. In other words, people must fail the means test and have enough disposable income—after they pay all their monthly bills—to repay creditors. If they don’t, they are automatically eligible for chapter 7. Under chapter 7, people discharged, or eliminate, their unsecured debts. Although chapter 7 does offer an automatic stay, it doesn’t help homeowners trying save their homes.

Bankruptcy Lawyers Can Help People Considering Chapter 13.

Anyone thinking about or wanting to file chapter 13 should seek the advice and help of bankruptcy lawyers. These lawyers will explain the chapter 13 bankruptcy law and file the required paperwork. More importantly, bankruptcy lawyers will immediately file bankruptcy paperwork for people in foreclosure.