CHAPTER 13 BANKRUPTCY CAN HELP DEBTORS SAVE THEIR HOMES
Chapter 13 Bankruptcy offers significant protection for Debtors who
have fallen behind on their home mortgage payments. Under the Bankruptcy
Code, Debtors are permitted to catch up on all delinquent payments on
mortgages and home equity loans against their primary residence over
a three to five year period under the terms of a Chapter 13 Plan.
Provided the Debtors remain current on all payments against their home
following the commencement of the Chapter 13 case, and make all Chapter
13 plan payments in a timely manner, the Creditor on a home loan is
required to accept repayment of all mortgage arrearages through a Chapter
Chapter 13 is similar to a debt consolidation. The Debtors pay one
single monthly payment to the Bankruptcy Trustee assigned to their case,
and the Trustee distributes the funds among all of the Debtors' Creditors
as set forth in the Debtors' Chapter 13 Plan, formulated by the Debtors
and their bankruptcy attorney.
A portion of the single monthly payment is applied to the mortgage
arrearages over the three to five year plan period.
Under Utah law, a home lender holding a Deed of Trust recorded against
a Debtor's home can complete foreclosure proceedings within about 60
days after submitting proper notice. The filing of a Chapter 13 case
stops a foreclosure sale immediately upon filing. This is true even
if a Debtor files a Chapter 13 bankruptcy one hour before a foreclosure
sale. The Debtor will then proceed to formulate a plan to re-pay their
Creditors and catch up on all delinquent payments on the home to save
CHAPTER 7 CAN PRESERVE THE EQUITY IN A DEBTOR'S HOME.
Debtors who are seriously in debt and are contemplating debt consolidation
by borrowing against their homes should seriously consider bankruptcy
options available to them under Chapter 7. Incurring long-term indebtedness
against the Debtors' primary residence often results in excessively
high payments which the Debtors are unable to sustain over the duration
of the loan. If the Debtors are forced to incur additional debt after
borrowing against their homes, or if they are unable to borrow sufficient
funds against their homes to consolidate all of their debt, they are
vulnerable to losing their homes upon any change in their financial
The Homestead Laws in the State of Utah were amended in 1999 and are
very favorable to bankruptcy Debtors. The present Homestead exemption
for a primary residence is $20,000.00 per individual and $40,000.00
per couple. Instead of borrowing against their homes, Debtors who are
current in payments on all loans against their homes, can file Chapter
7 bankruptcy, eliminate most of their other debt, and emerge from Chapter
7 with the equity in their homes intact by claiming up to $20,000.00
to $40,000.00 of the equity in their homes exempt.
If the Debtors' home equity exceeds the limits of the Homestead described
above, a Chapter 7 option would not be available to them as their homes
could be taken and sold by the Bankruptcy Trustee. Debtors with equity
exceeding $20,000 per individual or $40,000 per couple should consider
filing Chapter 13 to resolve their financial difficulties.
NO INFORMATION OR MATERIALS CONTAINED HEREIN ARE INTENDED TO CONSTITUTE
LEGAL ADVICE, AND IS NOT APPLICABLE TO ANY SPECIFIC SET OF FACTS, ESPECIALLY
AS TO ANY INDIVIDUAL'S PERSONAL SITUATION. THE INFORMATION CONTAINED
HEREIN NOR THE PERUSAL OF IT DOES NOT ESTABLISH NOR CONSTITUTE AN ATTORNEY-CLIENT
RELATIONSHIP WITH UTAH BANKRUPTCY PROFESSIONALS OR ANY OF ITS ATTORNEYS.
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