Chapter 13 Buys You Time To Sell Your House.
Below is how Chapter 13 can greatly help you sell your home, on your own timeline, whether or not you qualify for a mortgage forbearance agreement.
1) How Chapter 7 vs. Chapter 13 May Provide Financial Stability
Chapter 7 bankruptcy brings you stability primarily by writing off (“discharging”) most or all other debts. That way you can focus on your house payments after you file bankruptcy. If you can make your mortgage payments after all your other debts are discharged, you will have additional time to sell your home.
But in many situations, discharging your debts in Chapter 7 does not help enough. In those situations, Chapter 13 may give you financial stability in important ways that Chapter 7 does not.
Chapter 13 protects you from debts that Chapter 7 does not discharge. You’re not left at the mercy of aggressive creditors like an ex-spouse and the tax authorities. You pay these types of debts under a court-approved Chapter 13 Plan that is based on your disposable or projected income. In the meantime, these creditors are forbidden to try to collect any additional money on their debts. You just need to make the Plan payments that you and your bankruptcy lawyer proposed, and that the bankruptcy court confirmed. Then, you really can focus your financial resources and your attention on selling your home.
Chapter 13 also gives you much more leverage over various other kinds of creditors, particularly over your mortgage lender. This is mostly in the form of buying you much more time to sell your home.
2) Chapter 13 Buys You Time
A Chapter 7 case may buy you some time, but not much. It immediately prevents a home foreclosure from going through. But that protection usually lasts only a few weeks, seldom more than a couple of months. The extra little time may be enough to finish closing a house sale. Filing Chapter 7 may also stop a judgment or tax lien from hitting your home’s title. But you must always remember that Chapter 7 only buys you limited time.
Chapter 13 can buy you more time. Sometimes, it gives you much, much more time. It can do so in various ways. You should speak with your local bankruptcy attorney to discuss this issue in more detail.
Some Ways Chapter 13 Buys Time
First, assume you’ve decided to sell your home but need time to get it ready. Chapter 13 can usually give you months to do this. Let’s say you are getting to the end of a forbearance agreement. You know you won’t be able to pay the regular mortgage payments at that point. Or you won’t be able to pay that plus the catch-up amount. Chapter 13 will often buy you many months, even longer under the right facts. So you would get the highest sale price instead of getting low-balled for being a desperate seller.
Second, now assume you wish you didn’t need to sell your home for a year or two or three. You have kids in school so you don’t want to force them to transfer. Or you’re taking care of an elderly parent who needs the current stability for a while longer. Or you’ll be able to downsize in a couple of years for whatever reason but it would be very disruptive now. Chapter 13 will often buy you a couple of years, maybe even up to 5 years, to sell when the time is right for you.
Third, you may currently not know whether you’ll be able to afford to hang onto your home or will need to sell it. You don’t know because you’ve been on a crazy rollercoaster of extensions through the pandemic foreclosure moratorium. And like tens of millions of other Americans your income has taken a big hit. You don’t know where you’ll land in 6 months or a year or two. Chapter 13 can give you and your home protection now and the flexibility to adjust in the next couple of years.
Chapter 13 could make it possible for you to sell your home until the time is right for you. Do you fear you cannot afford to catch up on the arrearage accrued during your forbearance period? A Chapter 13 payment plan could put off paying that arrearage until you sell your home. That could maybe even be years from now. Do you wish you didn’t have to sell, or aren’t sure whether you will, depending on your job situation? Or depending on health or other personal circumstances? A Chapter 13 case can buy time until those circumstances develop.
You may not even have to sell. Chapter 13 may enable you to stretch the catch-up payments out longer than your mortgage holder would allow so that you could afford to stay.