| Q. Who would make the best candidate for a chapter 13 bankruptcy filing? |
| A. Primarily people in foreclosure who want to save their home file a chapter 13 bankruptcy to stop the foreclosure process and hopefully establish a reorganization plan to keep their house in the long run. |
| Q. You keep talking about long term and short term. Doesn’t everyone want to keep their house for the long run? |
| A. Not always, imagine a case where the homeowner knows that they can not afford to keep their home. For this example figure they built a great deal of equity in the house over the years and that if there wasn’t a pending foreclosure they could sell the property and cash in on their equity. A chapter 13 provides the time and the means to stop the foreclosure and provide for an orderly sale. |
| Q. I’m already in trouble with making payments. How much will I need to pay in order to save my house? |
| A. To start, regular monthly payment must resume. |
| Q. But the bank says I need 8 payments or they will just send my check back, how much do I really need? |
| A. Chapter 13 acts like a reset button. Imagine it’s a whole new game with all new rules. First off you need to make a regular monthly payment. Forget about the past for this part. And figure a regular monthly payment as if you just started the mortgage. |
| Q. What if I can not make a regular mortgage payment? |
| A. In some cases you might put together a plan that delays your first payment by a month or two |
| Q. It’s not a matter of a month or two; I will never be in a position to make the regular mortgage payment. How does a chapter 13 help me save my home in the long run then? |
| A. It will not. To keep a house in a chapter 13 certain payments need to be made. |
| Q. Suppose I can afford regular payments if I do not have to deal with my past due money, what else do I need to pay? |
| A. You will indeed face those past due arrearages, but the chapter 13 laws provide for a much more liberal payback than a bank would offer. |
| Q. How might I estimate my monthly payment to repay the mortgage payments I previously missed? |
| A. Take all of you old missed payments, including everything right up to the time you began on a regular schedule again, even if you missed one or two after the filing of the chapter 13 bankruptcy. The courts allow you to pay that back over 5 years, so divide your mortgage arrearage by 60 (for 60 months) then multiply it by 1.1 to cover the trustees fees. That gets you to an estimate for what it will take monthly to catch up on past mortgage payments |
| Q. What if I miss a payment? |
| A. While one miss or a late payment might get the bank and trustee riled up, you generally get the chance to make up for minor miss-steps. But make no mistake, if you skip multiple payments and do not live up to the promises in the plan your cases gets dismissed or the judge allows the bank to resume the foreclosure. |
| Q. What if I filed my chapter 13 bankruptcy a few hours before the sale? |
| A. No matter what it takes a week or two for scheduling the sheriff or auctioneer and they might want time to place some ads about the auction even if they previously published ads to meet the legal requirements. |
| Q. I’m still not sure if a chapter 13 bankruptcy represents the right choice for me, how should I figure this out now that I know about chapter 13 bankruptcy basics. |
A. For an easy method try the system that interactively evaluates your situation and give you guidance. To look at things yourself keep these things in mind:- Does a chapter 13 provide a plan to address more debt than just the house?
- Do you need a court to stop a foreclosure sale?
- Can you develop a chapter 13 reorganization plan you will complete?
If you answered yes to two or more of those you should be looking into a chapter 13 bankruptcy. |
| Q. How far in advance of the foreclosure sale do I need to file my chapter 13 in order to stop foreclosure, or if I know bankruptcy will end up my best solution should I just do it right now? |
| A. I generally advice against rushing a bankruptcy filing. You may find things change or another option emerges. Bankruptcy filing stops the foreclosure auction as long as it takes place before the auction and the creditor and auctioneer get notification, even a few minutes before the sale. Now that does not mean it’s a good idea to wait that that close to the auction in case you get an unforeseen problem, but a week before gains you the same advantage as a few months before. For planning and cash flow purposes you may find it makes sense to wait too. For example if you possess very little extra cash and you file right away you must start resuming full mortgage payments soon. Waiting a few months may allow you to save some cash you may use if you have a rough month while in bankruptcy and those additional missed months prior to filing will get spread out over 3-5 years. One exception might be cases where you know you want a chapter 13 bankruptcy prior to the bank charging their legal fees for the foreclosure and a filing would prevent those charges. |
| Q. I already filed chapter 13 bankruptcy, but I never knew about other options, should I dismiss my case and proceed in another way? |
| A. Most often I suggest if a debtor filed a bankruptcy and put together a plan they can manage to just stay with it. One of the main reasons for not filing a bankruptcy comes from the grave damage a bankruptcy inflicts on your credit. Once filed you experienced the damage and dismissing the case fails to remove it. |
| Q. What if chapter 13 bankruptcy looks like the right plan for me but I do not have the money to pay a lawyer? |
| A. Some attorneys will take a deposit on the total legal fees and build the rest into the bankruptcy reorganization plan. In theory you may file a bankruptcy pro se or in plain language without an attorney but I do not recommend that. You would not think about removing your own appendix, you should get an to file your chapter 13. |
| Q. You spent most of this FAQ talking about houses and foreclosure. What if I only need to deal with credit card debt? When would I want a chapter 13 bankruptcy for just unsecured debt? |
| A. Never first comes to mind, but let’s look at when you should file a chapter 13 for only unsecured debt like credit card debt. Avoiding bankruptcy with a needs exploration to avoid having to file any bankruptcy at all. When that fails as an option or looks like a bad selection and you need a bankruptcy for only unsecured debt, particularly when you own no hard assets like a house, a chapter 7 bankruptcy serves you better than a chapter 13. Read more in the Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy FAQ. For some people chapter 7 fails to meet their needs or they fail to meet the chapter 13 bankruptcy requirements and than either debtors will select chapter 13 or the court will force them to move their case to a chapter 13. |
