Behind on Mortgage Payments in Alabama? Chapter 13 Can Help

Falling behind on mortgage payments and dealing with the threat of foreclosure can be a frightening experience. If you’re struggling to keep your mortgage payments up to date, it’s important to know that you have options to protect your home and regain financial stability.

Chapter 13 bankruptcy is among the most effective of these options. This blog will guide you through how Chapter 13 can help you manage mortgage arrears and avoid foreclosure in Alabama.

Understanding Mortgage Delinquency and Foreclosure in Alabama

Mortgage delinquency occurs when you miss one or more mortgage payments. Foreclosure is the repossession of your property by the institution that lent you the money to buy it (your bank). If you continue to miss mortgage payments, your lender may take possession of your home via foreclosure.

Alabama is a non-judicial foreclosure state, so your lender won’t need to go to court to foreclose on your property. This means the process is potentially a lot faster here than elsewhere in the country, so it’s crucial to take corrective action quickly if you’re behind on your mortgage payments.

How Chapter 13 Bankruptcy Can Help Alabama Homeowners Behind on Mortgages

Chapter 13 bankruptcy requires you to submit a three- to five-year repayment plan to the court regarding the clearance of your debts. Upon filing, an automatic stay is imposed, preventing your creditors (including your mortgage lender) from pursuing you for payment of what you owe.  A successful Chapter 13 case will allow you to eliminate most unsecured debt while catching up on secured debt, thereby preventing foreclosure. This is among the most significant benefits of Chapter 13 bankruptcy for Alabama homeowners facing foreclosure

Chapter 7 bankruptcy, on the other hand, requires the liquidation of your nonexempt assets. Your primary residence may qualify for the homestead exemption, depending on the amount of equity you have in it. However, Chapter 7 is not designed to allow a person to “catch up” on missed payments.  Typically, to keep property through a Chapter 7, you must reaffirm the debt.  Reaffirmation is a process where you agree to continue making payments as if you had not filed for bankruptcy protection.  Reaffirmation is not typically possible if you are behind on the debt securing a specific asset.

Eligibility for Chapter 13 Bankruptcy in Alabama

To be eligible for Chapter 13 bankruptcy in Alabama, you must have a regular income that will allow you to meet your repayment obligations.

Other requirements include:

  • Private individual status: You must file for Chapter 13 as an individual; it is not a form of business bankruptcy.
  • Tax payments: You must have filed federal taxes for the last four years.
  • While there is not a minimum amount of debt, there are maximums.  The types of debts and amounts in certain categories can limit your bankruptcy options.

The Chapter 13 Bankruptcy Process for Alabama Homeowners

You’ll begin the Chapter 13 process by filing a petition in the federal Bankruptcy Court. If this filing is successful, it will trigger the automatic stay and prevent any foreclosure actions against your home.

Next, you’ll submit a proposed repayment plan to the court, outlining how you intend to pay off your arrears and stay current on future payments. Once your plan is filed, you’ll begin making payments to your bankruptcy trustee, who then disburses the funds to your creditors.

The process typically lasts three to five years; its exact length generally depends on your income level. If your monthly income is less than Alabama’s median income, your payment plan can be as short as three years. If your income is above the state median, the plan will most likely be five years long.

Upon successful completion of your Chapter 13 plan, most remaining unsecured debts should be discharged.

Considerations Before Filing Chapter 13 for Mortgage Delinquency

Before filing for Chapter 13, it’s important to consider whether it’s the right option for you. Chapter 13 requires a long-term commitment to a repayment plan, which may require significant lifestyle changes.

You should also consider:

  • Your mortgage payments: While Chapter 13 can stop foreclosure, it will not reduce your overall mortgage debt. If you fail to keep up with your mortgage repayments, you may be vulnerable to foreclosure.
  • The stability of your income: Are you likely to be able to maintain or increase your current earnings over the course of the three- to five-year repayment period? If you own your own business and your revenue fluctuates, or if you might be vulnerable to a job loss or a pay cut over the coming years, your Chapter 13 repayment plan might fail.
  • Potential alternatives: Bankruptcy is never the only option. In the next section, we discuss alternatives to bankruptcy and explore the situations in which they can be useful.

Alternatives to Chapter 13 Bankruptcy for Alabama Homeowners

If Chapter 13 isn’t the right fit for you, there are other options to consider. These include:

  • Loan modification: This involves negotiating with your lender to change the terms of your mortgage.
  • Short sale: Another option is to sell the property for less than the amount owed on your mortgage. This may be a viable option if you’re in a position to relocate to a more affordable residence without major inconvenience.  Check your market.  Due to recent increases in interest rates, your mortgage payment may be less than rent in your area.
  • Refinancing your mortgage: This involves replacing your existing mortgage with a new loan, ideally with lower interest or more favorable repayment terms.

The Importance of Consulting with an Alabama Bankruptcy Attorney

Consulting with an experienced Alabama bankruptcy attorney can provide you with the guidance and support you need to make informed decisions during difficult financial times. An attorney can help you understand your options, prepare the necessary paperwork, file for bankruptcy if necessary, and represent you in court.

If you’re struggling with mortgage payments, don’t wait until it’s too late. Reach out to our experienced bankruptcy attorneys today and explore how Chapter 13 can help you regain control. You can schedule a free initial consultation with Grainger, Hawley & Shinbaum by filling out our online contact form or by calling 334-260-0500.  We have offices in Montgomery and Prattville to better serve your needs.

We can help you get out of the hole.

Attorney Charles Grainger

Attorney Charles Grainger possesses decades of legal experience focused on debtor-creditor law, bankruptcy, and business law. His legal work is designed to help clients overcome debt and secure a stronger financial footing. He also provides legal services to entrepreneurs and business owners. Grainger Legal Services takes a comprehensive approach to debt relief and financial education for clients in south-central Alabama. [ Attorney Bio ]

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