by Thomas D. Richards, Lawyer Referral Service Panelist
It is usually the last resort, but filing a Chapter 13 or Chapter 7 bankruptcy can allow you to possibly keep your home. The Chapter 7 is a liquidation of your debts, but you can “reaffirm” your home, and the court will allow you to keep it. In a Chapter 13, you file a “plan of repayment” with the court, which must approve it. If approved, you make your regular monthly payments going forward, but the back payments are spread out over up to five years to pay back with small monthly amounts paid through the Chapter 13 trustee’s office. Your plan payments are distributed to your creditors and this includes your mortgage lender. The “automatic stay” stops the foreclosure. The lender cannot take any more collection actions against you, and the state court/county foreclosure will probably be dismissed in the court where it was filed. The U.S. Federal Bankruptcy Court now has jurisdiction over your mortgage loan and can help you find a way to keep your home. However, you still must have sufficient income to make the future monthly payments on time. Sometimes, the lenders will reduce your monthly payments and interest rate as part of the bankruptcy, which can be an added benefit to filing bankruptcy. However, this will be reported on your Credit Bureau Report and will affect your ability to obtain credit in the future.