Navigating financial distress can be overwhelming, especially when the future of your property is at stake. Many Tennessee residents wonder whether they can keep their home if they file for Chapter 13 bankruptcy. Continue reading and schedule your free consultation with a Memphis, TN Chapter 13 bankruptcy lawyer for more information and legal advice today.
What is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, often referred to as reorganization bankruptcy or a “wage earner’s plan,” provides individuals with regular income an opportunity to reorganize their financial affairs and pay off all or a portion of their debts over a period of three to five years. Unlike Chapter 7, which involves liquidation of non-exempt assets, Chapter 13 allows the debtor to retain their property while committing to a repayment plan.
This type of filing is often beneficial for debtors who have valuable assets they wish to protect or who have income that exceeds the threshold for Chapter 7 eligibility. The Chapter 13 process focuses on the development of a repayment plan, which must be submitted to the court and approved by a bankruptcy judge. This plan outlines how the debtor will use their future income to pay creditors over the specified term.
The payments are made monthly to a court-appointed bankruptcy trustee, who then distributes the funds to the creditors. Upon successful completion of the repayment plan, remaining unsecured debts can be discharged. Chapter 13 offers a useful way for financially distressed individuals to have a fresh start under the protection of the federal bankruptcy court.
Can I Keep My Home if I File for Chapter 13 Bankruptcy in TN?
Yes, filing for Chapter 13 bankruptcy in Tennessee is one of the most effective ways to keep your home. Because Chapter 13 is designed for financial reorganization, its main benefit for homeowners is the ability to cure mortgage arrears over the repayment plan.
When you file, the automatic stay immediately halts any foreclosure proceedings. Your repayment plan will separate your total mortgage debt into two parts: the current ongoing monthly payment and the arrearage. You must continue to make your regular, ongoing monthly mortgage payments. Simultaneously, the past-due amount will be incorporated into your Chapter 13 plan and paid off in monthly installments to the bankruptcy trustee over three to five years.
This protection applies even if a foreclosure sale has been scheduled, given that you file before the sale takes place. If you have a second mortgage or home equity line of credit on a primary residence and the value of your home is less than the balance owed on the first mortgage, Chapter 13 may allow you to strip the junior lien and treat it as unsecured debt, which may be treated as unsecured debt and discharged after successful completion of the plan.
For more information on how to protect your home during the bankruptcy process, reach out to a skilled attorney at the Arnold Law Firm today.
