How Chapter 13 Can Help You Prevent Eviction And Foreclosure

Sometimes, our finances and debts get out of hand and reach a point beyond what we can handle. This can happen to hardworking citizens worried about their future credit opportunities. In addition, the COVID-19 pandemic also posed unique challenges to the national economy that might have affected you or a loved one.

If you are facing difficulties covering your mortgage or rental payments, you have options to remediate your debt and avoid eviction or mortgage foreclosure. At the law firm of William H. Lively, Jr. WHL, PLLC, in Tyler, Texas, our lawyer and staff are aware of the impact that bankruptcy can have on an individual’s lifestyle and financial health. Therefore, he commits to working closely with our clients to evaluate and analyze their options to reduce their debts.

For a free consultation, please call us in Tyler at 903-920-0008 or complete our contact form. We are the premier bankruptcy law firm serving all of East Texas.

Chapter 13’s Specific Benefits For Homeowners

Chapter 13 bankruptcy offers several benefits for homeowners, particularly those facing mortgage arrears or foreclosure. 

Through a court-approved repayment plan, homeowners can catch up on missed mortgage payments over a period of three to five years. The debtor makes timely payments to a bankruptcy trustee, who then allocates the funds to creditors, including the mortgage lender.

Moreover, filing for Chapter 13 bankruptcy initiates an automatic stay, temporarily halting foreclosure proceedings. This allows homeowners to organize their finances and make payments under the plan.

Additionally, the first mortgage on the property is treated as a secured debt. While homeowners can pay off arrears through the repayment plan, they still need to make regular mortgage payments to keep the home.

If the property’s current market value is less than the amount owed on the first mortgage, then the second mortgage may be classified as unsecured debt. This means that it could be paid at a reduced amount or even discharged in bankruptcy through lien stripping. This process removes junior liens, like second mortgages or home equity lines of credit, if they are wholly unsecured. 

To strip a lien, you must file a motion with the bankruptcy court demonstrating that the property’s value does not support the second mortgage. If you’re successful, the court may remove the lien and treat the second mortgage like other unsecured debts, which may be discharged at the end of the repayment plan. 

Chapter 13’s Protection For Renters

Chapter 13 bankruptcy can also provide certain protections for renters facing eviction. That said, it is important to note that there are limitations and exceptions. 

When a renter files for Chapter 13 bankruptcy, an automatic stay is enacted, temporarily halting most collection activities, including pending evictions. This provides immediate relief and gives the renter time to address their financial situation.

However, there are exceptions to this rule. For example, if the landlord has already obtained a judgment for possession before the bankruptcy filing, the automatic stay may not prevent eviction. The landlord can request relief from the stay to proceed with the eviction.

Illegal drug use within the premises or property damage may also block the automatic stay protection. In these cases, landlords can continue eviction proceedings.

When eviction is not imminent, renters can address their lease through a lease assumption. Assumption means that the renter intends to continue the lease and pay any arrears through the repayment plan. 

To assume a lease, the renter must demonstrate the ability to make future lease payments. They should also demonstrate that they could address any defaults through a Chapter 13 repayment plan. Other strategies to consider include the following:

• Payment plans: Propose a realistic payment plan to cover past due rent and continue current payments. 
• Lease modification: Negotiate a lease modification that might include reduced payments or a longer period to pay arrears.
• Legal assistance: Consider involving a bankruptcy attorney in negotiations to ensure that agreements are legally sound and beneficial.

While Chapter 13 offers certain protections for renters, there are specific limitations, especially regarding eviction proceedings. Renters can use bankruptcy to manage lease obligations, but it is essential to work closely with legal counsel when negotiating with landlords.

Call William H. Lively, Jr. WHL, PLLC Now To Protect Your Financial Future

Start by calling our Tyler office at 903-920-0008 to arrange a free consultation. You can also schedule a free consultation by completing our contact form. Your consultation is confidential.

We are a debt relief agency. Our attorney helps people file for bankruptcy relief under the Bankruptcy Code.