Foreclosure & Chapter 13 Bankruptcy

In Chapter 13 bankruptcy, you come up with a plan for making your regular monthly mortgage payments and paying off the arrears. If the bankruptcy court approves your plan, you’ll have three to five years to make the payments. Chapter 13 bankruptcy also reduces or eliminates your total debt load, making your mortgage more affordable in terms of your overall budget.

In some situations (and depending on where you file the bankruptcy), you can get rid of a second or third mortgage entirely, reduce a first mortgage on a vacation or rental home to the market value of the house, and even reduce the interest rate on your first mortgage to 1.5 points above prime rate.

If you live in one of the nonjudicial foreclosure states—where foreclosures regularly take place without the review of a judge or the benefits of a court hearing—Chapter 13 bankruptcy probably provides the best opportunity to challenge the legality of your mortgage and any threatened foreclosure.