Homeowners experiencing temporary financial hardships may consider bankruptcy as an option to prevent foreclosure. According to the Consumer Financial Protection Bureau, approximately 3 million Americans have fallen behind on their mortgage payments. As reported by CBS MoneyWatch, an estimated 70% of accounts were in delinquency for 90 days or more in early 2021.
Mortgage service providers may offer struggling borrowers forbearance, which provides short-term relief from making monthly payments. After the forbearance ends, however, a borrower may need to update his or her account. This may require making a balloon payment or applying for mortgage refinancing to receive a lower monthly obligation.
Creating a new budget may provide options to keep a property
Without a borrower’s ability to make a large payment or qualify for a new mortgage, a loan servicer may begin foreclosure. Homeowners with a steady income, however, may have an option to avoid foreclosure by reorganizing their monthly expenses through a Chapter 13 bankruptcy petition.
A thorough review of income and debts may provide a borrower with a way to prioritize mortgage payments. If an individual has the ability to enter into a payment plan, a bankruptcy may halt foreclosure and create a workable arrangement to repay creditors.
Filing for Chapter 13 bankruptcy requires an agreement with creditors
After filing a petition, a court-appointed trustee reviews an individual’s income, debts and creditors and the individual’s plan to pay the mortgage payments and the accumulated arrearage. Depending on an individual’s earnings, the a payment plan may last between three and five years. As noted by Bankrate.com, a plan requires sending monthly payments to the court, (actually to the Chapter 13 Trustee) which then distributes them between an individual’s creditors according to the confirmed Chapter 13 plan..
Property owners facing foreclosures may consider several options for keeping their homes. Filing for Chapter 13 bankruptcy may help stop foreclosure and create a payment arrangement that may discharge remaining unsecured debts when the plan comes to an end. Individuals with mortgage problems should consult a qualified bankruptcy attorney to help them review their options.