In 2005, when Congress made sweeping changes to the Bankruptcy Code, they left virtually unscathed the Chapter 13 Bankruptcy provisions designed to save a home from foreclosure.  Today, in the face of massive foreclosures, many families are unaware that Chapter 13 Bankruptcy may still be used to prevent foreclosure.

There are three different types of Bankruptcy that are generally available to individuals:

Chapter 7 Bankruptcy (sometimes referred to as a liquidation) is the most common.  In this Bankruptcy qualified individuals are allowed to discharge most of their unsecured debt in exchange for allowing their non-exempt assets to be liquidated by a Trustee. 

Chapter 11 Bankruptcy (sometimes referred to as a business reorganization) is expensive and typically reserved for business or individuals with substantial assets and substantial income.  Chapter 11 allows debtors to reorganize their debt and pay their creditors over time.  The amount that they pay depends upon the value of their non-exempt assets.  The amount of time allowed is based upon current and projected income.

Chapter 13 Bankruptcy (sometimes referred to as a wage earner’s reorganization) is relatively inexpensive and exclusively for individuals with the ability to pay certain required obligations within a three to five year period.  The amount that needs to be paid over a three to five year period is determined by the value of non-exempt assets, the amount of certain non-dischargeable debts, and current income.

Chapter 13 Bankruptcy allows property owners who are delinquent on their mortgage payments to abruptly stop foreclosure proceedings.  This is true for any type of Bankruptcy filing, up to the day before the foreclosure sale.  But Chapter 13 is uniquely structured to allow the property owner to pay the delinquency in equal monthly installments over as much as sixty months (the PLAN).  So long as the PLAN complies with the technical requirements of the Bankruptcy Code, there is no need to get the lender’s agreement to the PLAN.

It is true that Chapter 13 Bankruptcy has rather stringent qualifications, including total amount of debt and income.  It requires a competent Bankruptcy Lawyer to analyze the specific debt and income facts to determine if the property owner qualifies. But assuming a property owner can meet these qualifications, Chapter 13 provides a mechanism for them to stop the foreclosure and protect their property for five years ... or at least until they can find a buyer at a reasonable price.

Time is the primary benefit.  Chapter 13 will provide the time needed to ride out the current emergency.

Board of Legal Specialization as a Bankruptcy Specialist.