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Keeping Your Home Through Chapter 13 Bankruptcy

Bankruptcy offers relief to homeowners who are financially strapped. Depending on your financial circumstances bankruptcy can provide assistance to stopping foreclosure, reducing payments, stripping off mortgage liens and reinstating delinquent mortgages.

The most common way that bankruptcy helps homeowners is by stopping a foreclosure and allowing the mortgage arrearage to be cured over a period of time. This is done by filing a Chapter 13 bankruptcy petition which can allow an individual to cure a mortgage arrearage over 5 years. In order to do this, the Chapter 13 must be filed prior to the sheriff’s sale.

Chapter 13 bankruptcy allows Debtors the right to prioritize their creditors and treat them differently depending on their importance. For example if you have a mortgage debt and also significant other debt such as credit card debt, the mortgage payments can be paid back prior to other debts. In addition, the credit debt can even be eliminated if the Debtor does not have the ability to repay it. This is significantly better than what an individual can do on their own or with a credit counseling program which does not have the legal ability to classify and prioritize the debts. Oftentimes people who employ credit counseling agencies are harmed because they lack the ability to prioritize their creditors. They pay their credit cards off, fall delinquent on their mortgages and lose their homes.

Chapter 13 also helps people strip off wholly unsecured mortgages. If a homeowner has two mortgages on their property and the value of the property is worth less than what is owed on the first mortgage, the second mortgage can be stripped off the property. This means that the second mortgage need not be paid anything and upon the case being completed, the second mortgage will be discharged. This is a great benefit to people whose house is worth less than the mortgage owed.

Chapter 13 can help people with delinquent property taxes, water bills and other liens. Chapter 13 can stop the county from seizing or foreclosing on property and offer a Debtor up to five years to cure the delinquency. In some cases Chapter 13 can modify a mortgage whose term becomes due during the plan and even the payments and interest on the loan can be modified and reduced.

Chapter 13 can help people stabilize a Debtor’s finances by reducing most other debt. Car loans can be reduced to a fixed payment and spread over 5 years with the interest reduced to the market rate. By lowering the car payment and eliminating or reducing other debt, a Debtor has a better ability to repay their mortgage payment and not lose their home. In addition, interest is stopped on most other debts and there are no late fees or penalties while in a Chapter 13. Chapter 13 provides a fixed monthly payment to the Trustee so the Debtor is better able to manage their other household expenses.

Even if a person has filed a prior Chapter 7 bankruptcy, they are eligible to file a Chapter 13 to stop a foreclosure. If a person filed a Chapter 7 and subsequently became delinquent on their mortgage, there is no time period to wait before filing a Chapter 13 to stop a mortgage foreclosure.

In today’s uncertain times, Chapter 13 can offer a lifeline to strapped homeowners, by stopping foreclosures, reducing payments, stripping off mortgage loans, eliminating other debt, modifying certain mortgages, stopping late fees, reducing interest payments and offering a fixed monthly payment. If you're a Michigan resident and are looking for a bankruptcy attorney in the Detroit area, please contact our office to see if we can help.

Article provided by Michigan Bankruptcy Attorney John Steinberger.

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