Stopping Foreclosure With Chapter 13 Bankruptcy
Tennessee allows for non-judicial foreclosure. Therefore, your lender does not have to go to court in order to foreclose on your property. The usual process is for you to receive notice by mail 20 days or more before the scheduled auction date. A trustee performs the actual sale, not the lender.
Filing a Chapter 13 bankruptcy before the scheduled foreclosure sale will automatically stop the sale. When you file a bankruptcy an automatic stay immediately goes into effect. This automatic stay means that all creditor actions against you and your property must stop, including any foreclosure sale. This means that the automatic stay stops or voids any foreclosure sale of your property.
Before you can file a Chapter 13 bankruptcy there are some things you need to do. Some of the common requirements include filing your taxes for the most recent year due. Proof of your filing of taxes must be given to your attorney. A list of ALL of your creditors is also required in order to give notice to them. Evidence of pay for the previous two months must also be provided to your attorney. You will also need to bring proof of your social security and a government issued photo ID.
The Chapter 13 Plan is one element of Chapter 13 bankruptcy that is different from Chapter 7 bankruptcy. The Chapter Plan is where you set out your pay schedule to creditors, including your mortgage lender. You will always propose paying the regular mortgage note plus a little bit extra that will “catch-up” what you have fallen behind within 5 years.
If property has a lien on it you must pay for that property in a Chapter 13 bankruptcy if you wish to keep it. These debts are called “secured” debts, for example a debt on a car or a mortgage. Debts that have no property attached are called “unsecured” debts. In a Chapter 13 bankruptcy unsecured debts provide more flexibility in payment, you can pay all or nothing and everything in between on these debts - depending on things like the value of all your property and your income level.
Some property, like cars, can be subject to a “cram-down” in a Chapter 13 bankruptcy. A debt is crammed down when the secured debt is reduced to reflect the value of the property rather than the actual amount owed. An example would be a car that has a payoff amount of $20,000 but the car is only worth $10,000, the cram down would result in a secured debt of $10,000 and an unsecured debt $10,000.
In order to go into effect, a Chapter 13 Plan must be “confirmed.” Upon confirmation the Chapter 13 Trustee will begin paying your creditors. You make payments on your Chapter 13 Plan either directly or through a payroll deduction.
When your Chapter 13 bankruptcy is completed you will be current on your mortgage. At that time you will begin to pay your mortgage lender directly. Unsecured debts that were not paid will be discharged - which means that creditors cannot take any adverse actions against you.
