News & Events

LIVING THROUGH FORECLOSURE - CHAPTER 13
By: Brian P. Hayes

This is the third section of our look at living through foreclosure. In this segment we will consider the use of a Chapter 13 Bankruptcy filing to stop foreclosure.

While many readers may realize that bankruptcy laws changed in October, 2005, what they may not realize is the negligible effect of the law changes on most debtors. Using a Chapter 13 filing to stop a foreclosure can have several beneficial aspects. First, a Chapter 13 filing immediately terminates the advancement of the foreclosure proceeding. Under §362 of the Bankruptcy Code an "automatic stay" is imposed which prohibits the lender (and almost all other creditors) from attempting to collect on debts. By stopping the foreclosure early in the process, a Chapter 13 can save the home, and perhaps decrease the foreclosure costs (attorney fees, etc.) incurred by the bank and then passed on to the borrower. Unlike a forbearance agreement, a Chapter 13 filing can protect the home without the cooperation of the lender. Finally, repaying the arrearage on the mortgage in a Chapter 13 will normally give the homeowner between 3 to 5 years. This breaks the arrearage in the smaller pieces, as opposed to the larger lump sums oftern required in reaffirmation agreements.

While the Chapter 13 filing will impact on one's credit, the effect may be no worse than the negative credit reporting related to the late payments and foreclosure filing. Additionally, while the Chapter 13 filing remains on the credit report for 7 years, judgments and other litigation can remain in excess of 10 years. Since most people facing foreclosure have defaulted on other debts (credit cards and car payments) as well, the Chapter 13 can be a "one stop" solution to give people a fresh start.

Retaining one's home after the initiation of the foreclosure is certainly possible-depending on the homeowners financial situation. If you or someone you know is threatened by a foreclosure, our office may be able to help. We are a federally designated Debt Relief Agency under the United States Bankruptcy Laws. We assist people with finding solutions to their debt problems, including, where appropriate, assisting them with the filing of petitions for relief under the United States Bankruptcy Code. If you believe you may need to consider a Bankruptcy, please call to set an appointment. Our initial consultation is free, and in many cases our fees can be paid through the Chapter 13 plan.