If I File a Chapter 13 in New York a Few Days After a Foreclosure, Does It Reverse the Foreclosure?
Chapter 13 is the section in the U.S. Bankruptcy Code that deals with individual reorganization. Under Chapter 13, the debtor lists his debts, declares his monthly income and expenditures and works out a payment plan under court supervision to pay off some or all of the amount owed. It differs from a Chapter 7 bankruptcy, in that the debtor is still allowed to keep a substantial amount of personal assets as he works through the bankruptcy process. The goal is not liquidation and discharge, but the eventual satisfaction of creditors.
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Chapter 13 Process
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When you file a Chapter 13 bankruptcy, you must file the documents listed in Form B 200, including an overall financial statement explaining your situation, a listing of all your debts, an itemized list of monthly expenditures and a list of assets, income sources and resources available. The court will convene a meeting of your creditors, and you will work out a payment plan. Meanwhile, collection efforts of all creditors named in the bankruptcy must cease. This includes phone calls, garnishments, levies and even foreclosures, pending the resolution of the Chapter 13 proceeding.
Effect on Foreclosure
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Chapter 13 generally stops all collection efforts, including foreclosures, in their tracks. However, to stop foreclosure, you must file for bankruptcy prior to the date of sale. Once you file, you will work out a plan to pay your current mortgage, plus catch up on any payments in arrears. However, you must file, and receive a docket number from the court, prior to the date your home is sold. You cannot reverse a foreclosure once the bank or mortgage company has sold the home to someone else.
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Secured Vs. Unsecured Creditors
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To avoid having the bank or mortgage company proceed with foreclosure, you must continue to make the payments directed by the trustee under your Chapter 13 plan. In most cases, this will be substantially all of your original mortgage payment. The bank cannot proceed with a foreclosure unless it receives court permission. However, if you are not making your mortgage payment, the court may grant this authorization, even though you are in Chapter 13.
Laws Specific to New York
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A law recently passed by the New York State Legislature and signed by former Gov. David Paterson substantially liberalized the allowable exemptions. The law makes it easier for Chapter 13 filers to concentrate available resources on paying down secured debt, rather than unsecured debt, such as credit cards. The technical change in the law may allow Chapter 13 filers to keep their homes when they might not have been able to under the old rules.
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