If you face unmanageable debt and are facing foreclosure or behind on your mortgage payments, but still want to try to keep your home, a Chapter 13 bankruptcy may be your best option. A Chapter 13 bankruptcy is a simplified form of personal reorganization for individuals, in which you pay your creditors according to a court-approved plan. Here’s how a Chapter 13 works in this situation.
Once you file for protection under Chapter 13, an automatic stay goes into effect. Under the automatic stay, your creditors (including your mortgage lender) must immediately stop all efforts to collect the debt, other than through the bankruptcy proceeding. This stay means they cannot call, write or take any legal action — file or continue lawsuits, initiate foreclosure proceedings, etc. — in an attempt to get you to pay any amount on the debt.
In a Chapter 13 proceeding, you can take up to five years to bring your mortgage payments current, provided you start paying again and remain current after filing your bankruptcy. How you do this is based on a plan that needs to receive court approval and in most cases, to have the approval of the Chapter 13 trustee. Typically, you will work with your attorney to propose a plan that takes into consideration your income as well as all your debt. In order for the plan to be approved, certain requirements apply. First, you have to have money left over to pay the trustee after you meet your basic living expenses. (this is called “disposable income”). If your income is high enough, your minimum payment may be dictated by a formula commonly known as the “Means Test.” You must fully pay most taxes and any child support or alimony arrears, as well as other “priority” debts. You qualify only if your debts are under certain eligibility limits. You can expect to be required to contribute “substantially all” of your “disposable” income through the plan. You have to pay your creditors at least what they would have gotten in a Chapter 7 bankruptcy. If you meet all these requirements, court approval, or “confirmation” of the plan generally follows in due course.
While your plan is underway, the automatic stay remains in effect throughout the entire three-to-five-year period. You must, however, stay current with the payment arrangements or the bankruptcy court may terminate the bankruptcy and lift the automatic stay.
Bankruptcy is only one of the many practical and legal considerations in these situations. Getting early advice from an experienced and qualified bankruptcy attorney is very important to maximizing your chances of success.
Contact Neuner & Ventura, LLP
At Neuner & Ventura, LLP, we know the personal challenges that come with a potential bankruptcy filing. We offer a free initial consultation to every client. We do, however, reserve the right to charge a fee to review any work done by another attorney. For an appointment, call Neuner & Ventura at (856) 596-2828 or send us an e-mail. Evening and weekend appointments are available upon request.
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