Filing either a Chapter 7 “straight bankruptcy” case or a Chapter 13 “adjustment of debts” one stops a pending home foreclosure, and prevent one from starting. If you’re behind on your mortgage (or are about to be) and want to keep your home, whether Chapter 7 or Chapter 13 makes more sense depends on how far behind you are and how much help you need to catch.
The “Automatic Stay”
Filing either a Chapter 7 or Chapter 13 case immediately imposes the “automatic stay” on your mortgage lender, and on all your other creditors. This is the federal law which stops and prevents (“stays”) just about all collection actions against you or your property, including a home foreclosure.
Under Chapter 7 this “automatic stay” protection only lasts a short time, usually about three months or so. And the mortgage lender can even ask the bankruptcy court to shorten that protection.
Limited Help through Chapter 7
Chapter 7 usually enables you to keep your home if you are current or not too far behind on your mortgage payments. Consider Chapter 7 if you want to keep your home and after filing bankruptcy you would have enough cash flow to make both your regular mortgage payments plus enough extra to be able to catch up on the late payments fast enough to satisfy your particular mortgage lender(s).
Gain Much More Time with Chapter 13
Instead of giving you just a few months, Chapter 13 can usually keep your mortgage holder at bay for as long as five years while you catch up on your mortgage payments.
If your home is in foreclosure or are about to be, you could be tens of thousands of dollars behind on your mortgage. You may also be behind on property taxes and/or homeowner association assessments. You likely need as much time as possible to catch up on these. Stretching the repayment period out as long as five years can reduce what you have to pay each month to catch up, and make keeping your home possible.
Mortgage Lender’s Cooperation
Under Chapter 7 you are pretty much at the mercy of your lender regarding how much time you’ll have to get current. So you have to pay the necessary amount each month to pull that off.
In contrast, under Chapter 13 you don’t rely on the cooperation of your mortgage lender. As long as you follow the law in how you and your lawyer put together the Chapter 13 payment plan, and then you comply with that plan, the lender has little choice.
As a result in a Chapter 13 case you are much more in the driver’s seat, following a financial plan based on what your budget says you can afford to pay.
Flexibility
Not only do you get much more time to catch up on your mortgage(s), you also often get a fair amount of flexibility in how and when that happens in relation to your other pressing debts.
For example, you may be also behind on your vehicle loan or child support. Depending on various factors, in a Chapter 13 case you may be able to pay such other even more urgent creditors ahead of or at the same time as you’re catching up on the mortgage.
Sometimes you may even be able to catch up on your mortgage in part or in full through a refinancing of your home. That refinancing may even be purposely delayed a couple years to allow for more equity to build up in your home.
Chapter 13 case comes with other kinds of flexibility. Your payment plan can from the outset reflect future anticipated increases in income or available funds, such as after a child starts school and a spouse begins making an income. That can make the payment plan easier in the meantime.
When financial circumstances change midstream, your Chapter 13 plan can usually be adjusted to reflect changes in your income and expenses.
These various kinds of flexibility make more likely that you can keep your home in the long run.
So if you live in the Dallas-Fort Worth Metroplex and are behind on your home mortgage, please get in touch. I’m Carrie Weir, an experienced a Texas bankruptcy lawyer. I serve the areas around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, Royse City, Sachse, and Rowlett. Please contact me for a free and confidential consultation. Please either just call me at 972-772-3083 or use the contact form here.
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