Chapter 13 Bankruptcy should be the last resort for you when talking about foreclosure. In most cases, an automatic stay is entered as soon as a Chapter 13 bankruptcy petition is filed. The automatic stay will temporarily stop foreclosure, along with all other collection action, regardless of the stage of the foreclosure proceedings. With the automatic stay in place, the debtor and his attorney have the breathing room to work out a Chapter 13 repayment plan.
The way that chapter 13 bankruptcy works is the debtor must file a proposed plan, setting forth his income, allowable living expenses, and proposed payments to the trustee for the benefit of creditors. Current payments must be kept current after the Chapter 13 bankruptcy petition is filed.
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This doesn't mean that you necessarily stop paying the mortgage. Homeowners must make all mortgage payments that come due during the Chapter 13 bankruptcy repayment plan, and failure to make current payments on time may mean that the bankruptcy court lifts the automatic stay and allows the mortgage company to resume foreclosure proceedings. Therefore, you will need to make sure that you are continuing payments.
Generally, you can file a chapter 13 bankruptcy to stop a mortgage foreclosure if you are employed or have sufficient income to make Chapter 13 plan payments as well as all current mortgage payments and living expenses, and if you do not have debts in excess of the statutory caps for Chapter 13 bankruptcy. This is a strategy that you would take if you needed more time to catch up on your payments.
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