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Chapter 13 Bankruptcy and Mortgage Arrears

Using Chapter 13 to Cure Mortgage Arrears

Chapter 13 is an excellent way to get a fresh start. Many think that you cannot get a discharge in chapter13 like you do in a chapter 7 bankruptcy, but that is not true. In a chapter 13 case, a debtor will pay a chapter 13 bankruptcy trustee their "dispossible" income over a period of time. From those payments, there is a ranking of creditors. Secured creditors get paid before unsecured creditors. What is left over, usually gets discharged.

It is because secured creditors get paid before unsecured creditors, Chapter 13 bankruptcy is an excellent way to cure mortgage arrears and if there is also unsecured debt, obtain a discharge. Here is how it works. Assume you are $10,000.00 behind on your mortgage and your lender has just let you know that you have a foreclosure date in one week. As long as you file a bankruptcy case before that foreclosure date, your home is protected and the foreclosure can no longer go on. Assume you file chapter 13. In the chapter 13 plan you state that you will pay back the mortgage arrears over a 36 month period. As long as you pay the amount required to cure the arrears over the 36 month period, you come out of the plan in 36 months with no arrears and your home current.

 

If you have mortgage arrears and want to save your home, don't hesitate to contact an experienced bankruptcy attorney, who is familiar with chapter 13.

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