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Can Chapter 13 bankruptcy help you prevent a foreclosure?

On Behalf of | Feb 3, 2022 | Chapter 13 Bankruptcy

Most homeowners spend a significant portion of their monthly income paying their mortgage. Lenders will typically allow people to finance as much home as they can reasonably pay for with a third of their monthly income.

Additionally, unless you bought new construction or a recently refurbished home, you will likely need to invest in maintenance and upgrades to the property. A new roof or upgraded fixtures throughout the home can cost you thousands and substantially increase the value of the property.

All of that could be at risk if your lender decides to foreclose on the home because you have fallen behind on your payments. Can you prevent foreclosure by filing for Chapter 13 bankruptcy?

An automatic stay can delay court proceedings

If you have already received legal notice from your lender that they intended for clothes or just a warning letter that you are at risk of foreclosure, filing for Chapter 13 bankruptcy can prevent that. The automatic stay that you receive the day that you file will prevent collection activity, including lawsuits against you.

The lender can potentially ask the court to lift the automatic stay for their debt, but that will be unlikely for a mortgage in a Chapter 13 filing. Instead, you will have the opportunity to renegotiate your debt.

Chapter 13 bankruptcy can help you restructure your mortgage

Negotiating new terms for your mortgage could make it easier for you to pay it on time or to get caught up on those missed payments. Although lenders are sometimes unenthusiastic about such negotiations, they have an obligation to cooperate up to a point during Chapter 13 bankruptcy.

Renegotiating your debts and creating a structured payment plan for unsecured debts are both important parts of the Chapter 13 bankruptcy process. It will be harder for your lender to refuse to cooperate with you at all during a Chapter 13 bankruptcy, which could mean that you can secure better terms for your loan despite your lender’s previous refusal to compromise with you.

 Taking action before it is too late is crucial

Although bankruptcy can help you renegotiate your loan and free up some of your income to make paying your mortgage easier, it will not undo a foreclosure that has already occurred. It is crucial that homeowners take action to defend themselves against foreclosure before going to court.

Learning more about how Chapter 13 bankruptcy works could help you protect your biggest investment and work on rebuilding your finances.