Falling behind on your mortgage can turn into a frightening question very quickly:
“Am I going to lose my home?”
If you are facing foreclosure, one of the legal options you may hear about is Chapter 13 bankruptcy. In certain circumstances, Chapter 13 can stop a foreclosure and give an eligible homeowner an opportunity to address past-due mortgage payments through a repayment plan.
But timing matters, and Chapter 13 does not guarantee that a home will be saved.
Understanding what Chapter 13 can—and cannot—do is important if you are already behind on your mortgage.
What Happens When You Fall Behind on Your Mortgage?
When mortgage payments are missed, the problem can eventually move into the foreclosure process.
Maryland Courts explains that a lender may generally file a foreclosure action after a borrower defaults, and the lender must provide certain notices before and during the process. For a principal residence, Maryland also provides an opportunity to request foreclosure mediation after the foreclosure action has been initiated, subject to specific requirements and deadlines.
That means receiving a foreclosure notice is not something to put aside and deal with later.
The foreclosure process has deadlines.
And waiting can reduce the options available to you.
Can Chapter 13 Stop a Foreclosure?
In many cases, filing Chapter 13 can stop a foreclosure through the automatic stay.
The U.S. Courts explains that filing a Chapter 13 petition automatically stays—or stops—most collection actions against the debtor or the debtor’s property. It specifically states that individuals may use Chapter 13 to save their home from foreclosure because the automatic stay stops the foreclosure proceeding when the petition is filed.
The U.S. Bankruptcy Court for the District of Maryland likewise describes the automatic stay as a legal injunction that automatically stops foreclosure, garnishments and other collection activity when a bankruptcy petition is filed.
However, this does not mean that filing Chapter 13 automatically eliminates the mortgage debt or guarantees that you will keep your home.
That distinction is extremely important.
How Can Chapter 13 Help With Mortgage Arrears?
Chapter 13 is designed for eligible individuals with regular income who can repay debts through a court-approved repayment plan.
According to the U.S. Courts, Chapter 13 may allow a homeowner to bring past-due mortgage payments current over time while continuing to make the regular mortgage payments that become due after filing.
In other words, the goal is not simply to make the foreclosure disappear.
It can provide a legal structure for addressing certain past-due amounts while dealing with other qualifying debts through the bankruptcy process.
Whether that is realistic in your situation depends on your income, debts, mortgage, property and other circumstances.
What If the Foreclosure Sale Has Already Happened?
This is where timing becomes critical.
The U.S. Courts warns that a homeowner may still lose the property if the mortgage company completes the foreclosure sale under state law before the Chapter 13 case is filed.
Maryland Courts also explains that a foreclosure can progress to a public auction and that, after the sale and subsequent court proceedings, the purchaser can obtain title and possession of the property.
This is why waiting until the last possible moment can be risky.
If you have received foreclosure paperwork, do not assume you have plenty of time simply because you are still living in the house.
Does Chapter 13 Guarantee That You Will Keep Your Home?
No.
This is one of the most important things to understand.
Chapter 13 may provide protection from foreclosure and a way for an eligible homeowner to address certain mortgage arrears, but you still have to comply with the requirements of your bankruptcy case.
The U.S. Courts explains that a homeowner may still lose the property if the foreclosure sale has already been completed before filing or if the homeowner fails to make the regular mortgage payments that come due after filing.
There may also be other legal issues that affect the case.
Your situation needs to be evaluated individually.
What Should You Do If You Are Behind on Your Mortgage?
If you are already behind on your mortgage, the most important thing is not to ignore the problem.
Gather your mortgage and foreclosure documents and find out exactly where you are in the process.
Maryland also has a foreclosure mediation process for eligible homeowners of owner-occupied residential properties. Maryland Courts notes that the request for mediation has a specific deadline after the lender provides the required form, and participation in mediation does not guarantee that foreclosure will be avoided.
At the same time, it may be appropriate to discuss your bankruptcy options with an attorney.
You do not have to wait until you know whether Chapter 13 is the answer before asking what your options are.
Talk to a Maryland Bankruptcy Attorney Before Time Runs Out
If you are behind on your mortgage and worried about foreclosure, the most important question is not simply:
“Can Chapter 13 stop foreclosure?”
It is:
“What options may be available in my situation, and how much time do I have to act?”
Attorney Albert Coto has 12 years of experience working with Chapter 7 and Chapter 13 cases, as well as experience negotiating loan modifications and payment agreements with creditors.
If you are facing mortgage arrears or foreclosure, getting legal information early can help you understand whether Chapter 13 or another approach may be appropriate for your circumstances.
Call the Law Office of Albert Coto at (240) 233-6816 to discuss your situation.
Do not wait until a foreclosure deadline is right in front of you to find out what your options are.