Interviewer: What’s usually the most common scenario in which someone would have to land themselves into a situation where they may require Chapter 13?
Court Koehler: Usually it’s because of a foreclosure action on their house. They’re behind on their mortgage and either are afraid that their house is getting on a foreclosure or there’s a foreclosure action that’s been filed. That’s the most common thing.
We can stop a foreclosure even if it’s right around the corner. I’ve gone as close to the weekend before when a house was supposed to be sold on auction on Monday, filed a Chapter 13, and saved those people’s house from being sold. The minute you are afraid that you’re getting behind on your payments on your house, all the way up until it’s actually sold, you can file a Chapter 13. That will stop the foreclosure action and we can get you into a payment plan that will help you keep your house.
Interviewer: What usually gets somebody into foreclosure? What gets them towards that? Is it because someone loses a job or is it because they just can’t afford payments anymore, for whatever reason?
Court Koehler: Yeah, it can be a lot of different things, especially with the way that the housing market has been over the past several years. Sometimes it’s as simple as adjustable rate mortgages; the rate goes up and somebody isn’t being able to afford their monthly payment anymore. Job loss is obviously going to cause a huge problem for people. You’re going to have trouble making your mortgage payment if you don’t have a job, so there’s that.
Sometimes I see medical problems; somebody will have a serious medical issue come up and either they lose time at work or they have now a lot of medical bills and they can’t afford everything. Those are pretty common reasons. You can see it with divorce, too. A lot of times, when there’s divorce and there’s a house involved, one person wants to take over the house and they get behind in their payments because they don’t have the means to keep up the payments without the other income.
Interviewer: What happens exactly? What typically happens? What lands a person in that scenario? What are they going to do from there and how is Chapter 13 is going to protect them? Let’s just get a little bit more detail on that one.
Court Koehler: Yeah. If you’re facing foreclosure, what will happen first is you have to miss a few payments before the bank is going to go through the trouble of putting you into foreclosure. They’re not going to do it after one missed payment or something like that. Sometimes it can be a long period. It may be a year or so of missed payments before you actually end up getting a foreclosure suit. Sometimes it’s much quicker than that. It’s really up to the bank and the situation and what they want to do.
When you start to miss your payments, what is happening then, if you end up eventually filing Chapter 13, is the amounts of money that you have to pay back over the Chapter 13 plan are increasing each month, for each month that you miss payment. Because over the Chapter 13 plan, what you’re required to pay back is the arrearage on the mortgage. The arrearage is just the amount of back payments that you missed. That can include interest and stuff, too.
While you’re missing maybe your first month of payment, let’s say your mortgage is $1,200 a month. Now you’re behind $1,200 a month. If you turn around right then and filed Chapter 13 bankruptcy, then you just have to pay that $1,200 back over the period of the plan. If you continue to miss three, four or five, six months, now you’re up to $7,200 and so you have a lot more to pay back over the course of the plan. It’s really best to come and see an attorney as quickly as possible, especially if you know that you’re not going to be able to get back on track or you think you might not be able to get back on track given your current employment situation.
If you continue to miss payments, eventually what will happen is the bank will file a foreclosure action in a state court. What that means is they want to take your house and sell it, basically. They have to go through the legal process, notify you, and you’ll have an opportunity to object to the foreclosure if you have some sort of legal standing or grounds for that happening. If you don’t ultimately have anything to defend yourself in the foreclosure, then it will go through. The judge will grant it and they’ll set a sell date and then they’ll sell your house.
At any point during that process, you can file a Chapter 13 petition and then that petition will stop the foreclosure proceeding right there in its tracks. It will prevent the court from going forward on it. It will prevent the bank or the creditors from going forward on anything. Like I said earlier, I’ve gone all the way up to the weekend before a sale is going to happen and then filing a Chapter 13 petition and stopping that foreclosure action.