Chapter 7 and Chapter 13 Bankruptcy Information
Several months ago I was interviewed by the Wall Street Journal.
This interview was concerning the home foreclosure crisis in Michigan
and how a Chapter 13 bankruptcy can help stop the foreclosure
process and save a home, or alternatively, how a Chapter
7 can benefit a homeowner. I thought it might be helpful
to provide an outline of that interview.
To begin with, average home mortgage foreclosures start about four months after no payments are made.
- When any bankruptcy is filed, all debts are frozen, all collection activity stops, this gives time for the Bankruptcy Court and Trustee to review and administer the estate of the bankruptcy filer for the best interest of the creditors.
- If a Chapter 7 bankruptcy is filed before the date of the
foreclosure sale, the freeze or stay on all collection activity
may be easily lifted by the mortgage company, and starts the
foreclosure all over again.
- If a Chapter 13 bankruptcy is filed before the date of the
foreclosure sale, the freeze on collection activity depends
upon the length of the plan. This Chapter 13 plan is generally
three-to-five years long and it must be approved by the court.
- The initial advantage of a Chapter 13 bankruptcy is it allows
the homeowner to stay in their home and not pay the entire mortgage
arrearages and late fees at once, in order to stop the foreclosure
sale. Also, a mathematical percentage of the remaining debt
owed to other creditors may be discharged, giving the bankruptcy
filer more money month to month as there is less debt to pay.
- If a Chapter 7 is filed, the homeowner must move out of the
home before the end of the redemption period after the foreclosure
sale—usually six months. After the redemption period expires,
the property is resold. The bankruptcy filer is not responsible
for any sale deficiently or unpaid property taxes as all liability
for the property debts have been discharged in the Chapter 7.
- If a Chapter 13 is filed, there is no foreclosure sale or
redemption period, the homeowner must catch up on all property
taxes and late payments through the course of the three-to-five
year plan to stay in the home.
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