What Is Foreclosure?
It is a legal proceeding where a mortgage lender is authorized to repossess a home from a borrower who has missed several mortgage payments. The lender sells the property to recover the debt. If your financial situation has taken a turn for the worse and you won't be able to continue making your payments, we always advise debtors to contact their lenders and let them know. Most lenders are open to working out a payment plan that suits your current financial situation, even if it means smaller payments or allowing you to defer for a few months. This is because it is economical for the lender to work out a repayment plan than foreclose a home.
The process of foreclosure depends on what state you live in, but it usually takes around 120 days to 9 months. Once you miss payments, the lender may give you a chance to catch up. You will then get a notice of foreclosure that will have the county clerk's information. Once the foreclosure is complete, the house will be sold at auction, but let’s hope it doesn’t get to this point.
Understanding Chapter 13 Bankruptcy
Chapter 13 bankruptcy is commonly referred to as "wage-earners bankruptcy" as it helps people with an income repay their debt affordably. If you have some income that you can channel toward your debts, even if it means paying less than the minimum payments, then Chapter 13 bankruptcy might be the best option. Chapter 13 is known to be a repayment plan, so you may end up paying back some of the debt.
In Chapter 13 bankruptcy, the court will appoint a trustee who works alongside you or your bankruptcy attorney to create a repayment plan. The plan will combine all your debts, making them easier to manage. The trustee will manage your assets and monitor the progress of your monthly repayments.
How Much Will I Pay if I File Chapter 13 Bankruptcy?
Your monthly payment will depend on your finances. Consider taking the free Chapter 13 calculator below based on the bankruptcy forms to estimate your Chapter 13 plan payment. There are a couple of parts to the Chapter 13 payment plan, so let’s get into it.
Generally, the attorney fees range from $2,500-$6,000 which can be paid monthly, but there is a second part to the payment plan. In Chapter 13 bankruptcy, you may end up paying back none, some, or all of the debt, it depends on two factors- your non-exempt equity and disposable income.
Non-exempt equity is something such as home equity, so if you have home equity above the state exemption, then the court may say that you have the means to pay back a certain amount of the debt. However, Chapter 13 gives full asset protection so you may not have to worry about losing the house.
Disposable income is your income minus expenses, but the attorney will take a deeper look into this to calculate how much of the debt you would be paying back.
If your income is below the state income threshold for your household, you may be able to do the plan in 3 years, as opposed to five. Usually, Chapter 13 generally ranges from 3-5 years. However, if you can pay the full bankruptcy back in a lump sum, you may be able to be done sooner.
Keep in mind, that as long as you are in Chapter 13, it stops the foreclosure. If you choose to pay everything off faster, be sure you are caught up on your house payments because once the bankruptcy is completed or dismissed, the legal protection goes away. Filing bankruptcy gives you time to catch up on the payments by providing an automatic stay.
Can I Stop Foreclosure by Filing for Chapter 13 Bankruptcy?
Filing Chapter 13 bankruptcy can help stop foreclosure, provided you consistently follow your repayment plan. Once you file for bankruptcy, the court puts an automatic stay on your debts, prohibiting lenders from taking further actions to recover the money. The automatic stay forbids your lender from foreclosing your home until your bankruptcy case gets dismissed or they file to lift the automatic stay on the house.
Upon completing your bankruptcy plan, the court will discharge your unsecured debts. However, since a mortgage is a secured debt, it will not be discharged. Fortunately, you can complete your repayment plan and continue making modified mortgage payments until you pay off the entire balance. Besides, after the court discharges your unsecured debts, you will be more financially capable of continuing to pay your mortgage without the risk of foreclosure.
Contact Your Lender Before Missing a Payment
The power of communication is highly underestimated. You should always communicate with your lender once you realize you cannot make your payment. It is normal to panic and avoid facing your lender, but ignoring your lender and waiting for the issue to go away only makes things worse. Ignoring your lender might force them to sue you, and they will likely get a default judgment against you. Therefore, always communicate with your lender before missing your first payment.
Conclusion
There are numerous reasons why borrowers may fall behind on their mortgage payments. It could be due to unemployment, disability, or other types of financial hardships that make it hard to keep up with your mortgage payments. Should you encounter hardship that keeps you from making your mortgage payment, always notify your lender.
