Will I Lose My House if I File Chapter 13?
Keeping Your Home With Chapter 13 Bankruptcy: What You Need to Know
Many people worry that filing for bankruptcy means losing everything they own. If you’re considering Chapter 13 bankruptcy, you might also be wondering if it will put your house at risk. The good news is that Chapter 13 is designed to help you keep your assets, not take them away, unlike Chapter 7, which may require selling property to pay debts.
That said, filing Chapter 13 doesn’t absolutely guarantee you’ll keep your home. There are situations where a house could still be lost, even under this type of bankruptcy.
At the Law Offices of Wenarsky and Goldstein, LLC, we help clients understand how bankruptcy affects their specific situation. We can guide you through the process and provide the clarity you need to make informed decisions.
Read on as we go over the circumstances that could put your home at risk in Chapter 13 and what you can do to protect it.
Understanding Chapter 13 Bankruptcy
Chapter 13 bankruptcy is designed for individuals with a steady income who need time to catch up on overdue payments. It helps people manage their debts and repay them following the terms of a court-approved repayment plan that lasts for between three to five years.
The repayment plan is the core of Chapter 13. If you have debts from multiple sources, Chapter 13 can help consolidate those debts as long as they are included in the repayment plan. Instead of paying multiple creditors separately, you make a single monthly or biweekly payment to the bankruptcy trustee assigned to your case. The trustee then distributes the funds to your creditors based on the terms of your court-approved plan.
At the end of the repayment period, you may be entitled to a legal discharge or release from the debts captured under the plan even if some of them were not fully repaid (though certain debts such as alimony, home mortgages, child support, and certain taxes cannot be discharged). The Chapter 13 bankruptcy discharge can help you emerge from the process with a total or significant level of debt freedom, giving you the platform you need to continue rebuilding your finances.
How Chapter 13 Protects Your Assets
If you’re behind on mortgage payments or are otherwise indebted and you’re worried about losing your home, here’s how Chapter 13 bankruptcy can help protect your home and other assets from creditors:
- Help With Past Due Mortgage Payments:Chapter 13 bankruptcy offers a way to catch up with late mortgage payments and keep your home without fear of foreclosure. The repayment plan lets you spread overdue mortgage payments over three to five years, making it easier to manage alongside your other financial commitments.
- Secured Debt Adjustment: Chapter 13 can also help with other secured debts. While it doesn’t adjust the terms of your mortgage (for your home/primary residence), it can restructure payments on car loans or other secured debts, reducing financial strain and freeing up money to stay current on the payments for your home.
- The Automatic Stay: One of the key protections in Chapter 13 is the automatic stay. The moment you file, foreclosure proceedings and all other debt collection efforts must stop. This gives you time to stabilize your finances and work out a feasible repayment plan. As long as you follow the court-approved plan and stay on top of your regular mortgage payments, you can keep your home.
- Lien Stripping: For homeowners with second mortgages or more, Chapter 13 may provide additional relief. If your home’s value has dropped, you might be able to strip away a second mortgage, turning it into unsecured debt that doesn’t have to be repaid in full. This can make it even easier to hold onto your property.
Circumstances Where You Could Lose Your Home Despite Filing Chapter 13
Even though Chapter 13 bankruptcy is designed to help you keep your home, there are situations where you could still lose it despite filing Chapter 13. They include:
- Missing Plan Payments: One of the most common reasons people lose their homes during a Chapter 13 case is failing to keep up with their payments to the trustee. Under Section 1307(c) of the Bankruptcy Code, the court can dismiss a Chapter 13 case if the debtor fails to comply with the plan. So, if you don’t make your required payments under the Chapter 13 repayment plan, the bankruptcy trustee or your mortgage lender can ask the court to dismiss your case or lift the automatic stay, which allows foreclosure to continue.
- Falling Behind on Mortgage Payments: Chapter 13 allows you to catch up on past-due mortgage payments through your repayment plan, but you must stay current on your regular monthly mortgage payments. If you do not, the mortgage lender can ask the court to lift the automatic stay and proceed with foreclosure. Under Section 362(d) of the Bankruptcy Code, the automatic stay can be lifted “for cause,” which typically includes non-payment of post-petition mortgage obligations.
- Failure to Pay Property Taxes: While Chapter 13 bankruptcy can allow you to include overdue property taxes in your repayment plan, failing to stay current on your property taxes can result in a tax lien or foreclosure by the local government. Property taxes are often considered a priority debt under Section 507(a)(8) of the Bankruptcy Code. If the debtor does not include them in the plan or fails to pay them, the taxing authority can seek to lift the stay to allow them to foreclose.
- Excessive Home Equity Issues: Under 11 U.S.C. § 1325(a)(4), the court will only confirm a Chapter 13 plan if it ensures that unsecured creditors receive at least as much as they would in a Chapter 7 liquidation. If your house is worth a lot more than you owe, and the extra value (equity) is more than what the law lets you protect through the available bankruptcy exemptions, you have to pay that extra amount to your other debts in your repayment plan which could lead to higher monthly payments. If you can’t afford those payments, the bankruptcy court might make you sell your house to provide more value to creditors or switch to a different bankruptcy type where your house could be sold to pay creditors.
Essentially, Chapter 13 can help you protect your assets and home, but there are still risks involved. If you’re considering this type of bankruptcy or you’re struggling to keep up with your repayment plan, it is important to work with an experienced bankruptcy attorney who can help you navigate the complexities of Chapter 13, modify your plan, and protect your home.
How the Law Offices of Wenarsky and Goldstein, LLC Can Assist You
If you’re facing overwhelming debt and struggling to keep your home, Chapter 13 bankruptcy could be the solution you need despite its risks.
At the Law Offices of Wenarsky and Goldstein, LLC, we have extensive experience in Chapter 13 cases and can guide you through the process with personalized legal strategies to protect your assets to the maximum extent possible.
Sometimes, financial circumstances change, making it difficult to keep up with a Chapter 13 repayment plan. If you’re struggling to make payments, we can help you:
- Modify your plan to adjust payments based on new financial realities.
- Convert to Chapter 7 if repaying your debts is no longer feasible.
Every financial situation is unique. That’s why we provide tailored legal solutions based on your specific needs. Contact us at the Law Offices of Wenarsky and Goldstein, LLC, today to schedule a consultation. Let’s discuss the best path forward for your financial future and take the next steps together.
Call the Law Office of Wenarsky & Goldstein
At the Law Offices of Wenarsky & Goldstein, LLC, our New York and New Jersey attorneys are experienced and knowledgeable in bankruptcy, estate planning and probate, guardianship, special needs planning, and real estate law. To learn more about how we can assist you with your legal needs, call us today at 973-453-2838.
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