How Chapter 13 Can Stop A Foreclosure

In today’s poor economy, where home foreclosures seem to be commonplace, and where debtors have few options to stop a foreclosure, when the bank does not want to negotiate with the debtor, a chapter 13 filing may be the only way out. If a debtor has fallen behind in his or her obligation to a bank with respect to a home mortgage then their home may be subject to a foreclosure action by the bank. In such an action, the bank either by power of sale or by entry may take possession of the home pursuant to various provisions in the mortgage contract with the debtor. As indicated throughout this white paper, there are many requirements that a bank must first adhere to in order to take possession. One of those requirements is to obtain court approval.A debtor has a mechanism though the bankruptcy code, which can effectuate a complete stop to any foreclosure proceedings. Even if a bank has obtained a court order to foreclose, and even if the bank has set up a foreclosure action date, a debtor can stop those proceedings by way of filing a chapter 13 bankruptcy.The chapter 13 petitions provide several protections both for the home owner/debtor and a mechanism for the bank to recover its money. A debtor will need to propose a repayment plan, where the mortgage company will receive 100% of the missed payments over a period of 36 – 60 months. The debtor will also be required to remain current with its mortgage obligation, and if the debtor fails to remain current, all bankruptcy protection may be lost. The debtor will receive an automatic stay on any incurred pre-petition debt collection attempt. As such, the bank or mortgage company will be precluded from moving forward with any foreclosure actions during the course of the bankruptcy.

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