Are you facing a pending foreclosure? Have you received A Notice of Acceleration from the bank? Has a foreclosure sale been scheduled for your home? Has the permanent loan modification that you sought under the HAMP program been denied? Do you live in Alexandria, VA or the surrounding Northern, Virginia area? A chapter 13 bankruptcy may be the solution you are looking for.
A chapter 13 bankruptcy filing can help you stop a foreclosure, and if the circumstances are right, you may be able to save your home. A chapter 13 bankruptcy filing will allow you to catch up on your mortgage arrears over a prolonged period of time, typically three or five years. Once you are more than 3 months behind on your mortgage payment, the bank will expect that you catch up on all of your arrears or else face foreclosure. The chapter 13 bankruptcy buys you time and forces the bank to allow you to pay back the mortgage arrears over time, instead of in a lump sum. The $12,000 in mortgage arrears for instance can be paid at a rate of $200 per month over the course of sixty months, instead of writing a check for the full amount.
What else can a chapter 13 bankruptcy do for you? How about a concept known as lien stripping? Can you show that what you currently owe on your first mortgage is more than what your home is worth? In that case, you just may be able to get rid of your second mortgage entirely. You may be able to eliminate your $50,000 second mortgage for example. The bank holding your second mortgage gets paid pennies on the dollar, and you only remain responsible for your first mortgage. That is a pretty remarkable tool.
As for your unsecured debt, your credit cards, medical bills, etc., for most consumers the chapter 13 bankruptcy filing will allow them to pay a far smaller monthly amount over the life of the chapter 13 plan. And once you have completed your three or five years of payments, any remaining balance on the unsecured debt is discharged. The debt is eliminated in other words.
Chapter 13 bankruptcy however is not without its limitations. In fact, one of the prerequisites for your chapter 13 bankruptcy plan getting confirmed is the feasibility test. Simply put, you must prove to the court that you have enough steady income at the time of your bankruptcy filing to continue to make your normal monthly mortgage payments, catch up on your mortgage arrears, and make some partial payments to your unsecured creditors. The chapter 13 bankruptcy is designed for people who have hit a temporary setback to get back on their feet.
Unfortunately, a chapter 13 bankruptcy cannot create more income than what you have, and cannot at this time reduce the amount owed on the first mortgage of your principal residence through a process knows as “cram down.” And that is why I said in my opening paragraph that a chapter 13 bankruptcy filing may be able to save your home. Do not let anyone tell you, not even a bankruptcy attorney, that a chapter 13 bankruptcy is a guaranteed way of saving your home. That is like saying that a loan modification is guaranteed to save your home!
Other than stopping a foreclosure, a chapter 13 bankruptcy can be a powerful tool for those saddled with a great deal of tax debt, for consumers burdened by a tremendous amount of student loans, and for retrieving a car that has been repossessed.
Finally, for those individuals who cannot pass the Means Test and qualify for a chapter 7 bankruptcy, you may be “forced” into a chapter 13 bankruptcy. The bankruptcy court will expect you to contribute all of your disposable income as determined by the Means Test for a period of three or five years. If you make all your monthly payments in a timely fashion your reward is a chapter 13 bankruptcy discharge. Meaning the amount of money that you still owe to your unsecured creditors after you have completed the chapter 13 plan is forgiven. For most folks this means monthly payments that are generally much smaller than what they would be paying outside of bankruptcy.
Please note that this is just a broad overview of how a chapter 13 bankruptcy works.
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