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When is Chapter 13 a good option to stop foreclosure?

In Chapter 7 bankruptcy, your non-exempt assets are liquidated and sold to pay creditors. Whatever debt is left after that process can be discharged. But what if you still have heavy mortgage debt after your Chapter 7 case is finished?

Ohio residents should know that you can still file for Chapter 13 after a Chapter 7 case to begin a payment plan for your mortgage. There are some issues to consider, though, before taking that route.

Maybe your loan lender has declined to give you a loan modification, so you're considering Chapter 13 bankruptcy as a way of staving off foreclosure and keeping your home. Chapter 13 allows the filer to begin a repayment plan, and this plan involves making a single monthly payment to a bankruptcy trustee. The trustee then applies the payment to all of the debts listed in the plan.

One thing to bear in mind, though, is that under Chapter 13, filers will still be required to continue making mortgage payments outside of the Chapter 13 plan. That means you will be responsible for monthly mortgage payments and the payments to the trustee.

Chapter 13 can allow the filer's home to stay out of foreclosure, but keeping up with bankruptcy payments and regular mortgage payments is a tough road for many people. This type of bankruptcy is a kind of catching-up for people who are having trouble making payments on secured loans.

In other words, Chapter 13 is good for people who still have enough income to pay down their debt. This usually takes between three and five years.

In some cases, lenders may be more willing to grant a loan modification if a person in Chapter 13 is making the one-month payments according to the bankruptcy plan. To be sure about your own situation, it's a good idea to meet with a debt relief professional.

Source:, "Will Bankruptcy Help Mortgage Modification?" Justin Harelik, June 11, 2013

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