If you find yourself behind on mortgage payments due to any financial setback, including unemployment or illness, you might have the ability to stop a foreclosure by filing Chapter 13 bankruptcy. Chapter 13 bankruptcy can prevent foreclosure, giving you the ability to catch up on past-due mortgage payments over a three-to-five-year period. It also allows you to keep your house.
Filing for Chapter 13 Bankruptcy
If you want to avoid foreclosure, you should take immediate action to save your home. Once the house has been sold at auction, Chapter 13 bankruptcy won’t work. That’s because Chapter 13 bankruptcy allows a homeowner who is behind on mortgage payments to keep the home while re-paying all mortgage arrears over time.
In Colorado, when a homeowner defaults on a provision of a Deed of Trust, the lender can foreclose on that property. However, that foreclosure involves a process of filings and notifications to sell the property. The debt holder, who is usually a bank, must notify the Public Trustee with a Notice of Election and Demand (NED). The Public Trustee files the NED and the foreclosure starts.
It’s not an immediate process. Just because you’ve received a foreclosure notice, it doesn’t mean that the bank will immediately sell your home. The foreclosure sale usually takes about 110-125 days from the date a notice of election and demand is filed in the respective Colorado county. During that time, the owner still retains ownership of the property and is the only person who can access, sell, or transfer the property title.
Any time, but up to 15 days before the scheduled sale, a homeowner can file an intent to cure the default. That means they will pay what is owed on the mortgage, and the foreclosure process is paused.
Filing for Chapter 13 bankruptcy also puts a pause on the foreclosure process. It is called an “automatic stay,” which stops your lender from pursuing a foreclosure sale. This stay also stops the mortgage lender and other creditors from collecting on the mortgage without first receiving court permission.
Chapter 13 Bankruptcy Process
Chapter 13 Bankruptcy allows you to catch up on arrearages (missed mortgage payments) while you still make your monthly mortgage payments. The arrearages are paid according to a monthly payment plan. The monthly payment amount will be specified in your particular plan. That amount is delivered to a bankruptcy trustee. The bankruptcy trustee then forwards the agreed-upon payment to your lender. During the time allotted in the plan, which is usually up to five years, you must make your regular mortgage payments. Once you complete your specific payment plan, you get to keep your home as you are no longer considered to be in default.
Qualifying for a Confirmable Payment
To take advantage of a repayment plan, it’s necessary to have enough income to meet your current mortgage payment and other basic living expenses. Chapter 13 bankruptcy allows you to pay off any late or unpaid payments over the length of the repayment plan. The length of time, usually three to five years, depends on your income.
If you make all the required payments, you can avoid foreclosure at the end of the repayment plan and get to keep your house.
It’s worth noting that sometimes Chapter 13 bankruptcy isn’t an option. Your ability to stop foreclosure may be limited if you’ve filed bankruptcy in the past. It’s essential to speak with an experienced Colorado bankruptcy attorney about your options and the next steps.
Bankruptcy attorney, Heath Isaacs, at The Moorhead Law Group will use his years of experience with the law, local practice and individual trustees to maximize your discharge and protect your property.