gavel1.jpg I am getting questions on how a Chapter 13 affects a foreclosure?

Being the General Counsel of Prudential, Americana Group, REALTORS®, I do not practice in bankruptcy law and so I have asked this question of David Krieger, Esq., Haines & Krieger, LLC, 1020 Garces Ave., Suite 100, Las Vegas, NV 89101, PH: 702-880-5554, Fax: 702-385-5518, email: davkrieg@hainesandkrieger.com

David Krieger, Esq., says:

“Through a type of Bankruptcy called a “Chapter 13″ people can keep their property from being sold at foreclosure.  Quite often, filing a chapter 13 will also discharge (eliminate) any outstanding credit card debts, medical bills, payday loans and other unsecured debts.  In certain circumstances, a chapter 13 can even strip off (eliminate) a 2nd or 3rd mortgage.”

And I asked, “but what about Chapter 7?  Does that also assist arresting foreclosure?”

David says,

“Not really.  Chapter 7 doesn’t provide for a mechanism to cure pre-bankruptcy arrears.  Hence, chapter 7 is not a viable solution for saving homes in foreclosure.  However, a chapter 7 may be able to deal with any deficiencies resulting from foreclosed upon properties.”

“In order to be eligible to file a chapter 13, you must have regular income sufficient to support your ongoing Mortgage payments as they become due in the future.  You will also be required to make monthly payments to a chapter 13 trustee (who is a person appointed by the bankruptcy Court to administer the monthly payments).  Generally, through a chapter 13, someone who has fallen behind with their mortgage payments will make monthly payments over a course of 3 to 5 years to come current with their pre-petition mortgage deficiencies.  Upon completion of the plan payments, the mortgage is reinstated, the property is out of foreclosure and, frequently, all other personal debts are eliminated.”

“There are many misconceptions about how chapter 13 works.  Most of my clients (before they meet with me) think that they will have to repay all their debt.  This is almost never true.  The Bankruptcy system is set in place to help people in their time of need.”

“Also, many clients don’t think they will ever be able to purchase property or finance new cars again.  This is also untrue.  Not only will most chapter 13 debtors be able to purchase cars, homes, etc., in the future, but they are in better position to do.  Creditors lend based on the credit worthiness and other criteria of credit applicants.  When juxtaposed, a person in a chapter 13, who is discharging credit debt and reinstating mortgage terms is generally much more appealing than a debtor who has NOT filed bankruptcy still has significant outstanding debts such as defaulted loan/credit card obligations, mortgage deficiencies, etc.  To put this in further perspective, Creditors make lending decisions based on risk of default.  Generally, someone who in a chapter 13 for 12 months has established an ability to repay their ongoing debts, whereas a person who has not filed bankruptcy, but has bad debt outstanding has only demonstrated the opposite, an inability to manage their debt.  Accordingly, many of my clients are happily surprised when they receive offers for financing for new homes and cars within 12 months of filing a chapter 13.”

Altogether, Chapter 13 is very powerful tool for people who need financial assistance.  Unfortunately, clients of your REALTORS® are far from alone.  This real estate market has sent many people into my office who under normal economic conditions would never have dreamed of needing a bankruptcy attorney.  I meet with many clients weekly (including bankruptcy) seeking bankruptcy counsel, and generally this is the only option.  On that note, my clients often feel they are doing something bad, where in reality a Bankruptcy is frankly the most responsible outlet for most people facing the present dire financial circumstances.”

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