Bankruptcy Law Questions? Ask a Bankruptcy Lawyer Now.
A Chapter 13 bankrupcy will stop a foreclosure and allow the debtor to try to catch up on payments during the next 3 to 5 years (depending upon whether the debtor's income is below or above the state median average). However if the debtor fails to catch up and make all required payments during that period, then the foreclosure will be allowed to go forward.
The principal benefit of a Ch. 13 is that the debtor may be able to get rid of unsecured debts (credit card, etc.) to the extent that a creditor would lose its claim entirely in a Ch. 7 liquidation bankruptcy, thereby concentrating the debtor's payments towards "priority" and secured claims (child support, home mortgage, etc.), rather than the unsecured claims.
If the debtor successfully completes the plan, then the unsecured debts are all discharged, and the debtor is left with the priority and secured claims and hopefully, the ability to pay his/her bills going forward. If the debtor cannot complete the plan, then the claims will be discharged as to unsecured claims and the secured claims will be foreclosed, and the debtor will go forward pretty much with nothing other than the exempt assets that cannot be claimed in a bankruptcy (each State has different exemptions).
The problem with the current bankruptcy rules is that the mortgage loans are so unreasonably expensive that the debtor can't afford them even if they are the only debts that the debtor has. And, the result, as we are all now aware -- is foreclosure as the only option.
We are all still waiting while the Department of the Treasure works out the mortgage relief rules under which it will permit banks to offer relief to borrowers. This may provide new options -- but until those rules are finalized, we are all in a holding pattern. Some will be able to hold on long enough to get a better deal from the government. Others will simply lose their homes, because they can't wait any longer -- and, neither can the lender.
Hope this helps clarify things for you.
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