Is the Mortgage Company Required to Work Out Payments in a Chapter 13?
Chapter 13 bankruptcy is often referred to as "restructuring" because it allows debtors with secured debts such as mortgages and auto loans to create a payment plan that allows them to retain property and pay off creditors within a three- to five-year span. Mortgage companies are required to comply with the terms of a Chapter 13 bankruptcy upon approval of the payment plan by the court.
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The Automatic Stay
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When you file for bankruptcy, you're granted what's known as an "automatic stay." This stay prevents lenders and creditors from continuing debt collection practices against you, including phone calls and even civil suits. Your mortgage company or other lending institution is unable to foreclose on your home during this period. Your lending institution may incur stiff fines if it attempts collection practices against you while you're under bankruptcy protection.
Making Timely Payments
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If your Chapter 13 bankruptcy repayment plan is approved by the court, your lender has no legal choice but to comply with its structured payment schedule. Since the bank can't legally seize the property, it has every incentive to accept the approved payment terms. Your protection remains in place as long as you make timely payments in accordance with your debt repayment plan to your court-appointed bankruptcy trustee.
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Resolution of Delinquency
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In accordance with Chapter 13 bankruptcy rules, your court-approved structured repayment plan is required to account for your debt delinquencies with payments arranged to bring the accounts current. Your mortgage company or other lending institution is going to get all of the money you owe it, and you get to avoid foreclosure --- a win-win situation.
If Your Bankruptcy Is Refused
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If you're late making payments according to your structured repayment plan, or if your Chapter 13 bankruptcy is refused by the court, all bets are off. Your bank or other mortgage company doesn't have to accept any proposed repayment plan outside of the original mortgage you signed and may immediately resume foreclosure proceedings against you. Any rights of redemption to stop foreclosure and keep your property are dependent on the state you live in.
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