Are You Upside Down On Your Mortgage And Facing Foreclosure? How A Chapter 13 And Lien Stripping May Help
If you are one of the thousands of people facing foreclosure because you owe more on your home that what it is worth, there is a chance you can make things better. A Chapter 13 bankruptcy is not a liquidation bankruptcy, but an adjustment of your debt. Your creditors are required to change the way you pay off what you owe. You are required to stick to the new payment schedule for the next three to five years. Once you have met your obligation, any remaining unsecured debt is forgiven; you are no longer responsible for it. In the case of home mortgages, this is very helpful in a couple of important ways.
Your Mortgage Payments are Reduced
The first thing that happens when you file a Chapter 13 that will help keep your home from being foreclosed upon is the restructuring of the loan. The lender will have to work with you to accept a new payment plan. In many cases, this may be a payment amount that is less than what you had been paying. If not, you will at least be allowed to make the normal payment without having to pay a large amount to cover any arrears. While the bankruptcy is ongoing, they cannot foreclose on you as long as you make the new payments.
Lien Stripping
A big consideration for going with a bankruptcy is having any second, third or even fourth mortgages forgiven. If you owe more on the house than what is owed for the first mortgage, any other liens on the home, including other mortgages or mechanics liens, become unsecured debt. Once the bankruptcy has been discharged, and you have made all payments for the timeframe required by the court, any unsecured debt is wiped clean. Now all you have to worry about is your first mortgage.
A Chapter 13 is more beneficial to you than a Chapter 7 if you owe more than the home is worth because there is a chance for you to keep the property. In a Chapter 7, the lender may decide to foreclose on the secured debt if you do not get caught up and stay current on your current payment plan. In addition, anyone that has a lien on the property has the right to request a foreclosure because selling the home would not give you enough money to pay off the first mortgage alone; any other lienholders would receive nothing at all. A bankruptcy lawyer like Travis A. Gagnier can help you understand the whole process if you have questions about what you should do.
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