Keeping a home with Chapter 13 bankruptcy

Kentucky residents looking for debt-relief options but wanting to keep their homes should learn what is and is not possible with a Chapter 13 bankruptcy.

Homeowners in Kentucky may have readily been able to afford their homes at one time but can end up having trouble making monthly mortgage payments for many reasons. From job losses to unexpected and steep medical bills are just some of the things that can contribute to these situations.

Most people know that a bankruptcy offers consumers a chance to get a fresh financial start. However, homes are frequently taken back by lenders in Chapter 7 bankruptcies. Chapter 13 bankruptcies, in contrast, may provide more opportunities for homeowners to keep their homes while getting back on their financial feet.

How can a Chapter 13 bankruptcy help save a home?

Bankrate explains that as soon as a filing for a new Chapter 13 bankruptcy is made, what is called an automatic stay goes into effect. An automatic stay is much like it sounds - an immediate halting of certain actions, namely collection efforts on the part of creditors including mortgage lenders.

Chapter 7 bankruptcy filings also result in automatic stays but the difference with the two plans is that assets like homes may be more likely to be retained with a Chapter 13.

A debtor is given three to five years to make bankruptcy plan payments with a Chapter 13 option. A mortgage is not included in this plan but during this time the homeowner can get caught back up with any past-due balance and resume making normal monthly payments. Sometimes a homeowner may be able to negotiate a mortgage modification. This is at the discretion of the lender and cannot be influenced by the Chapter 13 action.

What happens to a second mortgage in a Chapter 13 bankruptcy?

According to Forbes, for some time homeowners were allowed to completely eliminate some second mortgages through Chapter 13 bankruptcy proceedings. This was allowed in situations when the home value was so low that the second mortgage would be deemed an unsecured rather than a secured debt. As an unsecured debt, it was able to be extinguished.

In 2015, however, the U.S. Supreme Court issued a ruling that changed this. Today, automatic elimination of second mortgages even when homeowners are underwater with these debts may not be allowed.

How can I get help with my mortgage and debt problems?

The best thing for a Kentucky resident facing serious debt problems including a potential foreclosure to do is contact an attorney.