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Chapter 13: A Better Mortgage Arrears Solution

Deborah Brooks & Associates, P.C. Feb. 12, 2024

Miniature House on wooden table and judge gavel with scalesChapter 13 bankruptcy is often referred to as a "wage earner's plan." It allows individuals with a regular income to develop a plan to repay all or part of their debts. 

This option gives homeowners the opportunity to save their homes from foreclosure by allowing them to catch up on missed mortgage payments over time.  

Under Chapter 13, debtors propose a repayment plan to make installments to creditors over three to five years. If your monthly income is less than the state's median, the plan will be for three years unless the court approves a longer period. If your monthly income is more than the state's median, the plan usually must be for five years. 

At Deborah Brooks & Associates, P.C., I have an extensive track record of assisting clients in precisely your situation. With offices in Oklahoma City and Lawton, I serve clients throughout Western Oklahoma, providing personalized, experienced guidance to help you through the legal process of bankruptcy law, specifically Chapter 13 bankruptcy. 

Your Solution to Late Mortgage Payments 

Here's how Chapter 13 bankruptcy can help with your mortgage payments: 

  • Catch Up on Mortgage Arrears: In Chapter 13 bankruptcy, you can include your mortgage arrears in your repayment plan. This allows you to spread out these overdue payments over the course of three to five years, making them more manageable. 

  • Avoid Foreclosure: By making regular payments as outlined in your Chapter 13 plan, you can avoid foreclosure and keep your home. As long as you stay current on your mortgage payments and make up the arrears through your Chapter 13 plan, the lender cannot foreclose. 

  • Consolidate Your Debt: Chapter 13 bankruptcy provides a plan to consolidate your debt and make affordable, scheduled payments. This includes not only your mortgage arrears but also other types of debt, such as car loans and credit card balances. 

  • Opportunity to Strip Junior Mortgages or HELOCs: If the fair market value of your home is too low to cover secondary mortgages or home equity lines of credit (HELOCs), Chapter 13 allows for the removal or "stripping" of these junior liens. This process involves demonstrating that the value of your home isn't sufficient to pay the second or lesser mortgage holder. Once approved, the lien amount becomes part of your unsecured debt and is paid according to your Chapter 13 plan. 

If you're falling behind on your mortgage payments, facing foreclosure, and feeling like you're out of options, Chapter 13 bankruptcy can provide a way forward.  

Eligibility for Chapter 13 Bankruptcy 

Chapter 13 has specific eligibility requirements. You must have regular income and disposable income to apply towards your Chapter 13 payment plan. Additionally, your total secured and unsecured debts must fall within the limits set by the bankruptcy code. 

At Deborah Brooks & Associates, P.C., I can conduct a comprehensive review of your financial situation to determine if Chapter 13 bankruptcy is the right solution for you. Also, I can guide you through the eligibility criteria and help file paperwork that is correctly completed. 

The Role of Automatic Stay in Chapter 13 Bankruptcy 

One of the immediate benefits of filing for Chapter 13 bankruptcy is the "automatic stay," which comes into effect as soon as the case is filed. This stay prevents creditors from continuing with collection actions, which includes stopping foreclosure proceedings. It provides relief from the stress of incessant calls and letters from creditors, giving you the breathing space to work out your repayment plan. 

Creating a Repayment Plan in Chapter 13 Bankruptcy 

Creating an effective repayment plan is a crucial aspect of bankruptcy. This plan details how you'll pay off your debts over the bankruptcy period. It's based on your income, expenses, and types of debt. 

To create a successful repayment plan, here are some important factors to consider: 

  • Income: Your plan must reflect your ability to pay. It should take into account your regular income from employment, self-employment, or other reliable sources. 

  • Living expenses: Before determining how much you can afford to pay towards your debts, we'll first account for your necessary living expenses. These include housing, utilities, food, healthcare, transportation, and childcare. 

  • Type of Debt: The repayment plan must cover certain priority debts in full. These generally include child support, alimony, wages owed to employees, and certain tax obligations. 

  • Duration of the Plan: Depending on your monthly income, your repayment plan will last either three or five years. We'll help determine the duration that best suits your situation. 

Completing the Chapter 13 Repayment Plan 

After completing all payments under your Chapter 13 repayment plan, you receive a discharge of the debts included in your plan. The discharge releases you from all debts provided for by the plan or disallowed, with limited exceptions. This step marks the end of your Chapter 13 bankruptcy process and the beginning of your financial fresh start. 

Get Knowledgeable Legal Advice  

If you're struggling with mortgage arrears and facing the possibility of foreclosure, Chapter 13 bankruptcy can provide a better solution. At Deborah Brooks & Associates, P.C., I am committed to helping you regain control of your finances and save your home. My experience and personalized approach are what you need during these stressful times. Contact my firm today for a free consultation and take the first step towards a brighter financial future.