Foreclosures have been featured a lot in the news lately. In one of my very earliest bankruptcy blogs, Dis Or Dat? Foreclosure Or Bankruptcy?, I pointed out that there is no “one size fits all” solution, and that designing exactly the right plan for each client’s situation is what my work as an experienced bankruptcy attorney is about. In other words, in working with some clients, it’s best to create a strategy focused on avoiding foreclosure, and in other situations, that may not be the way to go.
In deciding which form of bankruptcy to file, one of the factors to consider is that a Chapter 13 bankruptcy offers individuals an opportunity to save their home from foreclosure. A chapter 13 can be referred to as a wage earner’s plan of bankruptcy, because it is meant for people who have regular income coming in that they can use to make installment payments to their creditors. To qualify for a Chapter 13 bankruptcy, a person’s unsecured debts (such as credit card bills, utility bills, and medical bills) must fall within certain limits (the number is indexed for inflation, and it’s now $336,900.) Their secured debt (such as car payments and mortgage) also must fall within a limit (now $1,010,650). The process is quite detailed, one reason it’s important to seek expert legal counsel.
The point I want to bring out here, though, is that, by choosing Chapter 13 rather than other forms of bankruptcy, individuals can stop foreclosure proceedings on their home. If they are approved for a Chapter 13, they will “cure” their delinquent mortgage payments, but they’ll be able to do that over time (three to five years), all the while keeping up with the regular mortgage payments and saving the home.
A second reason some people choose to file a Chapter 13 bankruptcy is that this kind of bankruptcy has a special provision that can protect co-signers on consumer debt. In some situations, this can be very important in protecting the assets of parents, spouses, or adult children. (In a Chapter 7 bankruptcy, by contrast, co-signers are not excused from liability.
Over almost twenty-five years of practicing bankruptcy law in Indiana, one important lesson I’ve learned is that people’s financial lives tend not to be cut-and-dried; each situation has different factors that must be weighed in coming up with a plan that is the least damaging to the people involved, as well as to their families, business partners, and creditors. Yet it’s important to choose a plan that offers bankruptcy clients the greatest chance for rebuilding their financial lives. Sometimes, after a long day in my office or at the bankruptcy court, I find myself sighing, “It ain’t easy, being a bankruptcy attorney!” But then I remind myself how rewarding I find this work, because I know I’m helping people get a fresh financial start.