If you happen to fall behind on your mortgage payments, then filing Bankruptcy may provide an option to help you catch up and get current on your mortgage. Specifically, a Chapter 13 Bankruptcy will help the debtor reorganize their creditors and provide for the mortgage arrears to be paid out over a period of 36 to 60 months. In addition, the Bankruptcy filing would prevent or delay an upcoming foreclosure if the case is filed prior to the sale date.
Once a debtor files for bankruptcy, an automatic stay is immediately put into place. The automatic stay, as provided under Section 362 of the Bankruptcy Code, prohibits creditors from continuing collection activity against the debtor during their bankruptcy case. After the bankruptcy case is filed, the debtor, who may be at risk of foreclosure, must make payments to their Chapter 13 Trustee according to the terms of their Chapter 13 Plan. The Chapter 13 plan will provide for the payment of the mortgage arrears, along with other creditors if applicable depending on a case by case situation. If the debtor fails to make the payments according to the Chapter 13 Plan, then the bankruptcy court dismiss the case, or the creditor may petition the court to allow foreclosure proceedings to resume.
Chapter 13 allows the debtor to reorganize their debts and pay them off through a three to five year repayment plan. If the debtor continues to pay each month, then filing for a Chapter 13 bankruptcy will provide an efficient way to prevent foreclosure and catch up on missed payments. The debtor must be able to pay the Chapter 13 Plan payments and their regular mortgage payments each month, depending on the jurisdiction which their Bankruptcy case is filed.
Filing a Chapter 13 bankruptcy is extremely beneficial if you are behind on your mortgage payments. Due to the automatic stay, creditors will be unable to continue collection activities. You can focus on reorganizing your debts and create a payment plan that will satisfy all of your creditors.