This is how.
First, in case you are unfamiliar with Chapter 13 bankruptcy, it is a court-approved payment plan in which the debtor (the person petitioning for bankruptcy) makes monthly payments to a bankruptcy trustee, who then pays the debtor's creditors.
There are a number of Chapter 13 bankruptcy provisions that aid individuals confronting mortgage foreclosure. Actually, the first aspect applies to all bankruptcies. This is known as the """"automatic hold"""".
Whenever a person files for bankruptcy, regardless of the form of bankruptcy, the law mandates an immediate ""automatic stay"" (temporary suspension) of the majority of civil proceedings against the person filing bankruptcy. This means that if a borrower faces mortgage foreclosure and files for bankruptcy, the mortgage lender must promptly halt foreclosure proceedings until it receives permission from the bankruptcy court to continue.
In Chapter 13, the bankruptcy court will not lift the """"automatic stay"""" and allow the mortgage lender to proceed with a foreclosure until the debtor (the individual filing for bankruptcy) stops making payments to the bankruptcy trustee. As long as the debtor continues to make his monthly payments to the trustee and his regular mortgage payments, the automatic stay will remain in effect and the mortgage lender will be unable to take action.
The second benefit of Chapter 13 for individuals facing foreclosure is that it allows a debtor to pay mortgage arrears over time, typically between three and five years. In the majority of foreclosure cases, the delinquent monthly mortgage payments (arrearage) must be paid in full in a single sum before the mortgage lender will consider stopping the foreclosure. The majority of individuals cannot pay the total sum.
In Chapter 13 bankruptcy, the arrears can be paid over time. He is not required to pay the entire amount at once. Spreading the large sum out over time entails making smaller monthly payments until the entire arrears are paid off. A creditor may object to the monthly payment amount, but once the bankruptcy court approves the payment plan, the creditor has no recourse other than to accept the payments.
Unsecured creditors may receive a portion or all of what is owed to them, which is a third aspect of a Chapter 13 bankruptcy that aids individuals facing mortgage foreclosure. This effectively reduces the monthly quantity of debt a person must repay. By paying less each month to unsecured creditors, there is more money available to pay secured creditors such as a mortgage lender. Therefore, a debtor should find it simpler to make his monthly mortgage payment.
This is commonplace knowledge. Consult an attorney licensed in your state if you require specific information or have any queries of any kind.
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