Powerful Chapter 13 gives you tools to solve your mortgage and other home lien problems from a number of different angles.
The Limits of Chapter 7 “Straight Bankruptcy”
In my last blog I described how a Chapter 7 case can under certain circumstances help you enough to save your home. Or in other situations it can at least help you delay a foreclosure for as long as you need. But Chapter 7 can only give limited help, maybe enough if you aren’t too far behind on your mortgage circumstances, or you don’t have other kinds of lienholders causing problems.
The Extraordinary Tools of Chapter 13
Chapter 13, on the other hand, provides you a range of much more powerful and flexible tools for solving many, many debt issues so that you can keep your home.
Here are the first five of ten significant ways that Chapter 13 can save your home (with the other five to come in my next blog).
Under Chapter 13 case you can:
1. stretch out the amount of time for catching up on back mortgage payments for as long as 5 years. This is in contrast to the one year or so that most mortgage lenders will give you to catch up if you do a Chapter 7 case instead. This longer period can greatly lower your monthly catch-up payments, making more likely that you would succeed in actually catching up and keeping your home. Very importantly, throughout this catch-up period your home is protected from foreclosure as long as you stay with the payment plan, one that you propose. Within limits you can later modify that plan if your circumstances change.
2. slash your other debt obligations so that you can afford your mortgage payments. The mortgage debt—especially your first mortgage—can’t be significantly changed under Chapter 13. So you are usually required to pay your full monthly mortgage payment, and to catch up any arrearage, but to accomplish this you are allowed to pay to most of your other debts.
3. permanently prevent income tax liens, and child and spousal support liens, and such from attaching to your home. The “automatic stay” preventing such liens under Chapter 7 last usually only about 3 months, and there’s no mechanism for dealing with these kinds of debts. Instead under Chapter 13, these liens are prevented throughout the three-to-five-year length of the case.
4. have the time to pay debts that can’t be discharged (legally written off) in bankruptcy, all the while being protected from those creditors attacking your home. So even if a tax or support lien is already in place before you file, you are given the opportunity to pay the debt while under the protection of the bankruptcy laws. That undercuts the leverage of those liens against your home. Then by the end of your case, the debts are paid and those liens are released.
5. discharge (write off) debts owed to creditors which could otherwise attack your home. For example, certain (generally older) income taxes can be discharged, leaving you owing nothing. But had you not filed the Chapter 13 case, or delayed doing so, a tax lien could have been recorded, which would have required you to pay some or all of the balance to free your home from that lien. Even most standard debts can turn into judgment liens against your house once you are sued and a judgment is entered. Depending on the facts, a judgment liens may or may not be able to be gotten rid of in bankruptcy. If instead you file a Chapter 13 case to prevent these liens from happening, at the end of your case the debt is gone, and no such liens attach to your home.
See my next blog post for the other five house-saving tools of Chapter 13.