By Attorney Patrick L. Mead

​​

​

How does Chapter 13 Bankruptcy Stop Home Foreclosure and Implement the 60-Month Plan?

​

Facing the threat of home foreclosure can be overwhelming. Fortunately, Chapter 13 bankruptcy offers a crucial opportunity for struggling homeowners to regain control of their financial situation. This legal process not only helps in managing debts effectively but also allows homeowners to keep their homes through meaningful repayment plans. By understanding how Chapter 13 functions, including its automatic stay and the structured 60-month repayment plan, homeowners can take proactive steps to avoid foreclosure.

 

What is Chapter 13 Bankruptcy?

 

Chapter 13 bankruptcy is a legal avenue that allows individuals to reorganize their debts. Unlike Chapter 7 bankruptcy, which typically liquidates assets, Chapter 13 enables debtors to propose a repayment plan that allows them to pay back a portion or all of their debts over three to five years. This method is particularly beneficial for homeowners facing foreclosure because it not only provides a way to catch up on missed mortgage payments but also delivers immediate relief from creditor actions. In fact, statistics show that almost 70% of Chapter 13 filers are able to keep their homes during the process.

 

The Automatic Stay

 

One of the most significant advantages of filing for Chapter 13 bankruptcy is the automatic stay. Upon filing, this legal provision goes into effect instantly, halting all collection actions, including foreclosure and repossessions. This pause gives homeowners essential breathing space, enabling them to focus on their financial recovery without the imminent threat of losing their home. For many, the automatic stay can last for several months or until the repayment plan is finalized, offering critical time to plan the next steps.

 

Stopping Foreclosure with Chapter 13

 

When homeowners file for Chapter 13 bankruptcy, they can put forth a repayment plan aimed at covering missed mortgage payments. This plan, which must receive court approval, can extend for up to 60 months. Beginners in this process should consider including their wage details, monthly expenses, and necessary living costs to come up with a reasonable plan. By addressing missed payments through the structured repayment plan, homeowners not only keep their homes but also avoid foreclosure entirely. For example, if a homeowner has arrears of $15,000 on their mortgage, they can spread this over the 60 months, bringing their payments down to around $250 a month—significantly more manageable than facing foreclosure.

 

Throughout this period, lenders cannot initiate foreclosure proceedings, provided that homeowners comply with the terms set in their repayment plan. Adhering to this plan is essential, as failing to do so could lead to the resumption of foreclosure actions.

 

The 60-Month Plan Explained

 

The 60-month plan—often referred to as the five-year repayment plan—is the core component of Chapter 13 bankruptcy. Under this arrangement, homeowners submit monthly payments to a bankruptcy trustee who disburses funds to creditors, including mortgage lenders. Homeowners need to calculate their income carefully, taking into account necessary living expenses. For instance, if a family earns $4,500 monthly, and their unavoidable expenses total $3,500, they may be able to allocate $1,000 toward their Chapter 13 plan.

 

This repayment plan must cover priority debts like child support and taxes while addressing the arrears on the home mortgage. Successfully completing the 60-month plan can result in a fresh start and set the foundation for a debt-free future. Data shows that nearly 50% of debtors successfully finish their repayment plans, which highlights the importance of commitment and the potential for freedom from debt.

 

Taking Charge of Your Future

 

Tackling the challenges posed by home foreclosure can seem daunting. However, Chapter 13 bankruptcy provides a powerful solution for many. It offers structured repayment plans and immediate protection from creditors, allowing individuals to reclaim financial stability. Understanding the ins and outs of Chapter 13 empowers homeowners to take decisive action against foreclosure and provides them with a clear pathway back to financial health.

 

​Taking proactive steps to manage financial issues can help individuals rise above the troubles of debt. It is advisable to consult with a competent bankruptcy attorney who can offer guidance on navigating this complex process and ensure the best outcomes. By seeking assistance and following the necessary steps, homeowners can look forward to a brighter financial future, free from the burdens of foreclosure.

​