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What Happens to Your House in Chapter 13 Bankruptcy?

By Spodek Law Group | February 20, 2024

What Happens to Your House in Chapter 13 Bankruptcy?

Filing for Chapter 13 bankruptcy can be a confusing and stressful process. Many homeowners facing financial hardship wonder, “What will happen to my house if I file for Chapter 13 bankruptcy?” This article provides a comprehensive overview to help you understand the potential outcomes.

How Chapter 13 Bankruptcy Works

Chapter 13 bankruptcy allows you to keep your assets, like your house, while repaying some or all of your debts over 3 to 5 years. This is accomplished through a court-approved repayment plan. Your repayment plan depends on your income, debts, assets and monthly expenses. The court determines an affordable monthly payment you must make to the bankruptcy trustee, who distributes the money to your creditors. After you make all payments under the plan, the remaining unpaid debt is discharged.

Can You Keep Your House in Chapter 13 Bankruptcy?

In most cases, yes – you can keep your primary residence if you file for Chapter 13 bankruptcy. However, this depends on a few key factors:

  • You must be current on your mortgage payments or only a few months behind. If you are significantly behind, the lender may not want to work with you.
  • You must have sufficient income to make your ongoing mortgage payments, as well as payments to other priority debts under your repayment plan.
  • You must commit to paying mortgage arrears (past due amounts) over your 3-5 year repayment plan. This gets folded into your monthly bankruptcy plan payment.

As long as you meet these conditions, you can keep your house throughout your Chapter 13 bankruptcy and beyond. The automatic stay triggered by bankruptcy filing halts any foreclosure proceedings against you.

What if You Can’t Afford Your Mortgage Payments?

If your income has decreased substantially, you may no longer be able to afford your monthly mortgage payment. In that case, your bankruptcy attorney can request a loan modification through the court process. The judge may order the lender to modify your loan by:

  • Lowering the interest rate
  • Extending the repayment term
  • Adding missed payments to the loan balance

This can significantly reduce your monthly payments to an affordable level so you can keep your home. Your attorney will negotiate the best possible terms on your behalf.

Will the Bankruptcy Court Pay Your Mortgage?

No, the Chapter 13 trustee does not pay your ongoing mortgage payments. Those remain your responsibility. However, any mortgage arrears (past due amounts) owed can be paid back through your 3-5 year repayment plan.For example, if you are $5,000 behind on your mortgage when filing, the trustee will distribute a portion of your monthly payment to the lender to repay that $5,000 over time. But you must continue making the normal monthly mortgage payments directly.

What if You Fall Behind on Payments During Bankruptcy?

To successfully complete Chapter 13 bankruptcy, you must make all payments laid out in your repayment plan. This includes staying current on your regular mortgage payments to the lender. If you fall behind, the lender can request relief from the automatic stay and pursue foreclosure again.To avoid this, be honest with your bankruptcy attorney if you are having trouble making payments during the process. They may be able to request a plan modification to temporarily reduce payments until you get back on your feet. This is better than risking dismissal of your case or foreclosure.

Could You Lose Your House in Chapter 13 Bankruptcy?

Yes, it is possible to lose your home in Chapter 13 bankruptcy if:

  • You fall significantly behind on mortgage payments and don’t get caught up.
  • You fail to make payments to the trustee under your repayment plan for several months.
  • Your repayment plan is not approved by the judge because it does not appear feasible.
  • Your case gets converted to a Chapter 7 bankruptcy, which may require liquidation of assets.

Talk to your bankruptcy lawyer if you end up in any of these situations – they’ll advise you on the best options to avoid foreclosure.

What Happens to Your House After Chapter 13 Discharge?

Congratulations! After completing all payments under your court-approved plan (usually 3-5 years), you receive a Chapter 13 discharge. This eliminates your remaining unsecured debts, such as credit cards, medical bills, personal loans etc.You get to keep your house free and clear. The bankruptcy discharge order permanently prevents creditors from pursuing you for discharged debts. Your mortgage loan essentially gets “reinstated” – it’s as if you never fell behind on payments.Just remember that your mortgage continues as normal, so you must maintain payments to the lender or risk foreclosure down the road. Avoid taking on additional debt you can’t afford. Stick to financial basics and rebuild your credit over time.

Finding the Right Bankruptcy Attorney

The outcome for your home in Chapter 13 depends greatly on having an experienced bankruptcy lawyer in your corner. Attorneys from Avvo or LawInfo can help negotiate loan modifications, create feasible repayment plans, and walk you through the process start to finish. Reach out for a consultation today.

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