Learn What Chapter 13 Can Do For You

What is Chapter 13 bankruptcy?

Chapter 13 bankruptcy is a repayment bankruptcy done under the protection of the Bankruptcy Court. It is different from Chapter 7 bankruptcy in that you will propose a plan where you will make monthly payments to pay back portions of your debt. Your monthly payment is generally determined by subtracting your monthly expenses from your monthly income. Your creditors are repaid a percentage based on your ability to repay them. Special circumstances may dictate a higher payment.

Why file Chapter 13 bankruptcy?

You may want to file Chapter 13 bankruptcy if your debts have become unmanageable and you are ineligible to file Chapter 7, because either you previously filed Chapter 7 within the past eight years or your income is too high. Please see the Chapter 7 frequently asked questions page for guidance as to whether you qualify for Chapter 7. You may also want to file Chapter 13 bankruptcy if you need relief from your debts, but have an asset you want to keep that would otherwise be lost in Chapter 7.

My home is in foreclosure or I am behind in my mortgage payments. Can Chapter 13 help me keep my home?

In many circumstances, Chapter 13 bankruptcy can be used to repay missed mortgage payments (often called an arrearage) and stop foreclosure in its tracks. You must have sufficient income to repay your missed payments in addition to your monthly mortgage payment and other living expenses. A foreclosure is not finalized until the property is sold at a foreclosure sale, and under Illinois law, a foreclosure sale may not take place until at least seven months after the foreclosure lawsuit has been filed. However, this is no reason to wait until the last minute. Every month that you delay seeking relief through Chapter 13 bankruptcy increases the amount you must repay your bank to keep your home, and you must repay your entire arrearage within five years. If you are behind on your mortgage payments or facing foreclosure and want to keep your home, contact my firm immediately to determine if you are a candidate for Chapter 13 bankruptcy.

I am underwater on my house. Can Chapter 13 help me modify my home mortgage?

If you have only one mortgage on your home, unfortunately, Chapter 13 will not enable you to modify it. If you have a first and a second mortgage, however, Chapter 13 may allow you to "strip off" your second mortgage and repay a percentage of the debt at 0 percent interest. At the conclusion of your Chapter 13, your second mortgage will be "released," and your only remaining debt will be the balance on your first mortgage.

The key to stripping off a second mortgage is that there must be no equity above and beyond what you owe on your first mortgage. With average home prices falling nearly every quarter since the financial crisis of 2008, many second mortgages that were previously secured by equity are now eligible to be stripped off in Chapter 13.

Learn More By Speaking With An Attorney

Contact me in Rockford at 815-306-4189 to discuss whether Chapter 13 is right for you.