When you file for Chapter 13 bankruptcy, an automatic stay goes into effect that prohibits most creditors from taking further action to collect a debt. This includes lawsuits, wage garnishments, and other collection efforts. If you are facing a pending foreclosure and file for Chapter 13 bankruptcy, the automatic stay will typically halt the foreclosure process until the bankruptcy case is resolved.

Chapter 13 bankruptcy is often referred to as a “reorganization” bankruptcy because it involves the creation of a repayment plan to pay off a portion of the individual's debts over a period of three to five years. If you are facing a pending foreclosure and are eligible for Chapter 13 bankruptcy, you may be able to have the foreclosure process halted and pay off the mortgage arrears through the bankruptcy repayment plan.

The bankruptcy repayment plan is a detailed document that outlines how the individual will pay off their debts over the course of the bankruptcy case. In order to create the repayment plan, the individual must provide the bankruptcy court with a list of their debts, income, and expenses. The bankruptcy trustee will then review this information and create a repayment plan that is feasible for the individual. The repayment plan must be approved by the bankruptcy court before it can go into effect.

One of the key benefits of Chapter 13 bankruptcy is that it allows individuals to catch up on missed mortgage payments over the course of the bankruptcy case. If you have fallen behind on your mortgage payments, Chapter 13 bankruptcy may allow you to catch up on the missed payments over the course of the bankruptcy repayment plan. This may help you avoid foreclosure and keep your home.

In addition to the automatic stay and the ability to catch up on missed mortgage payments, Chapter 13 bankruptcy may also provide other forms of relief for individuals facing a pending foreclosure. Depending on the specific circumstances of your case, Chapter 13 bankruptcy may allow you to:

  • Strip off a second mortgage: If the value of your home has decreased significantly and the amount you owe on your first mortgage is more than the value of the home, you may be able to “strip off” the second mortgage. This means that the second mortgage would be treated as an unsecured debt and would be paid through the bankruptcy repayment plan.
  • Modify the terms of your mortgage: If you are unable to afford the current terms of your mortgage, Chapter 13 bankruptcy may allow you to modify the terms of the mortgage to make it more affordable. This may include extending the repayment period, reducing the interest rate, or reducing the principal balance.

It's important to understand that Chapter 13 bankruptcy may not be the right solution for everyone. If you are facing a pending foreclosure and are considering bankruptcy as a potential solution, it's important to seek the advice of a bankruptcy attorney. A bankruptcy attorney can help you understand your options and guide you through the bankruptcy process.

In order to be eligible for Chapter 13 bankruptcy, you must have a regular income and your debts must fall within certain limits. If you are facing a pending foreclosure and are considering bankruptcy as a potential solution, it's important to act quickly. The longer you wait, the harder it may be to catch up on missed mortgage payments and avoid foreclosure. A bankruptcy attorney in Montgomery, Alabama can help you understand your options and guide you through the bankruptcy process.