Stop foreclosure in Virginia with Chapter 13 Bankruptcy
Posted by Robert Weed / in Blog, Chapter 13 Bankruptcy /
Filing Chapter 13 Bankruptcy Woodbridge VA | Law Office of Robert Weed
I’m Northern Virginia bankruptcy lawyer Robert Weed. I want to talk to you about filing Chapter 13 bankruptcy to stop foreclosure in Virginia.
Before the housing crisis, Chapter 13 bankruptcy was the best way to stop foreclosure in Virginia. Today, a lot of the time, getting a loan modification is a better way to stop a foreclosure.
Before the crisis, if you got five months behind on your mortgage payments, the banks would send your file to their foreclosure lawyers. And in the six month, you’d be foreclosed. Before the crisis, mortgage companies did talk to people about loan mods.
To Stop Foreclosure in Virginia, For Some People Loan Mods Work Great
Now, under government and public pressure, the banks have loan modification and foreclosure prevention programs. People five or six or eight to ten months, or more, behind on their mortgages can–sometimes–get a loan modification that brings them current, puts the late payments on the end of the loan, and even reduces the monthly payment.
Your legal tool to stop foreclosure in Virginia is bankruptcy. When you file Chapter 13, the law stops the foreclosure immediately. But you have to propose a plan to catch the house up–and then you have to do it.
Those programs have helped a lot of people–and they have let a lot of other people down. The banks have been forced to establish these programs. Forced by public pressure. Forced by Federal regulation. Forced by lawyers and judges. But the banks still run the programs, themselves. It’s the banks, not a judge or legal authority, where you apply. It’s the banks who accept you, or turn you down.
(Here are three websites that can tell you about those programs. HUD–The US Housing and Urban Development Department. The State of Virginia. And Virginia Housing Development Authority. You’ll notice all these official websites warn your about scammers–scammers who take your money and make a BS promise to stop foreclosure.)
Why file Chapter 13 bankruptcy?
If the loan mod program don’t work, if time runs out, you need a legal tool to stop foreclosure. You need a law and a judge on your side. The law that works to stop foreclosure in Virginia–for thousands of people every year–is Chapter 13 bankruptcy.
(Sometimes Chapter 7 bankruptcy is the tool you need. I explain that, here.)
How filing Chapter 13 bankruptcy can stop foreclosure in Virginia
Chapter 13 is a bankruptcy repayment plan. In Chapter 13, you say–and have to show–that you can pay your debts if you have time. (Having enough time means usually five years, sometimes three.) Chapter 13 can stop a foreclosure, if you can do two things. Start paying your mortgage again on time. And catch it up in five years with catch up payments through the bankruptcy trustee.
Filing a Chapter 13–even the night before a foreclosure–automatically stops the foreclosure. (It loses its automatic effect if you do it too often.) To stop it for more than a short while, you have to propose a payment plan. And to permanently stop it, you have to get the plan approved–and you have to actually make the payments.
When does filing Chapter 13 work best to stop foreclosure in Virginia?
Suppose Chuck lost his job for eight months, got behind on his house, has a foreclosure next week, and is now working again. Chapter 13 should work great for Chuck. Since he’s working again, he should be able to afford his mortgage, and he should be able to make his catch up payments, too.
Chuck could not get a loan modification when he was out of work. Now that he’s working, he doesn’t have time to stop the foreclosure in Virginia with a loan mod. Chapter 13 can stop the foreclosure. While he’s in Chapter 13, he can try again to get a loan mod approved.
Now look at Lisa. Lisa got a graduate degree, and now her student loans are due. She hoped her degree would get her a better paying job–but so far it hasn’t. She tried to pay the student loans–and the mortgage. And she got behind on both. Lisa got turned down for a loan mod because her other debts were too high. Chapter 13 can stop the foreclosure. And it can also put the student loans on hold–so she can afford the mortgage and the catch up. With the student loans now on hold, Lisa also can try again to get the loan mod. Then she might use the Chapter 13 to start to pay the student loans.
Using Chapter 13 to stop foreclosure might even work for Lee. Lee had an adjustable rate mortgage and he started slowly falling behind a couple years ago when it adjusted up. Now he’s six months behind,got turned down for a loan mod (who knows why?) and foreclosure is scheduled. He can stop the foreclosure with Chapter 13. Realistically, he can only afford to carry out his plan for a few months. As soon as the car needs repair, Lee will start falling behind again. Maybe in the few months that he can afford the stay in chapter 13, Lee can try again to get a loan mod. It might be worth a try.
Why Using Chapter 13 bankruptcy to Stop Foreclosure in Virginia often fails:
Five years is a long time.
Antonio and Rose filed Chapter 13 bankruptcy to stop foreclosure in Virginia back 2010. That worked. They made their five year Chapter 13 payments for three years. Then their oldest graduated from high school. At that point, they split up. They can’t afford the Chapter 13 payment, can’t afford the house, and don’t really need the house now that the kids are gone. They’re switching to Chapter 7. They will let the house go.
The same thing can happen if someone in the family gets sick. Or gets laid off. Or if an elderly relative now needs more care. Or if you get transferred to a distant city. If unpredictable life happens during the five year plan, it will probably fail.
Who is the Chapter 13 Trustee and What Does He Do?
If you use Chapter 13 to stop foreclosure in Virginia, you will spend five years having to answer to the Chapter 13 trustee. In Northern Virginia, the trustee is Thomas Gorman. He’s had that job since 2008.
When you set up a payment plan in Chapter 13, the person who collects your payments is Thomas Gorman, Chapter 13 trustee.
Besides taking your payments, and paying the money out to your creditors, the trustee has three other big jobs.
First, if your budget doesn’t work, the trustee tells the judge to throw you out of Chapter 13 right away. If your paystubs and budget show you can’t afford this house and the catch up payment, the Chapter 13 trustee tells the judge there’s no point in giving you a chance.
Second, if you start to fall behind, the trustee tells the judge to throw you out. Suppose you lose your job and the Chapter 13 trustee doesn’t get your payments. He asks the judge to throw you out.
Third, the Chapter 13 trustee can ask to increase your payments. The trustee looks at your tax forms every year, and if you’ve gotten a big raise, he wants it. (If your plan is catching up the house but only paying part of your other debts, he says now you can afford to pay the other debts, too.)
As part of this, the trustee can sometimes grab your tax refund. And if somebody dies during the five years and leaves you money, the trustee can go after that, too.
Maybe the Chapter 13 trustee also is supposed to operate a system that helps people succeed. (See 11 USC 1302(b)(4)) For many Chapter 13 trustees, that’s low on their priority list.
Problems with filing Chapter 13 bankruptcy
What are the problems with filing Chapter 13 bankruptcy? Obviously the biggest problem is that you have to make the payments.
Second, here in Northern Virginia, the Chapter 13 trustee almost always puts a garnishment on your pay. Lots of people want to promise they will make the payments faithfully, but the Judge here wants Chapter 13 trustee wants to be first in line. People are afraid they are embarrassed with the HR Department at work. (Actually the HR department probably has a lot of these. And a chapter 13 payment plan should be a lot less embarrassing than getting garnished on an unpaid bill.)
Third, the Chapter 13 trustee often wants more money. Sometimes, depending on your budget, we can start with a Chapter 13 plan that only pays your catch up payment. In other words, we can start with a plan that leaves the student loans until later and wipes out your credit cards and medical bills. Then if you get a raise, the Chapter 13 trustee wants more money so the credit cards get paid, too. The Chapter 13 trustee here in Northern Virginia has gotten very aggressive about doing that.
When the Chapter 13 trustee says you can afford more money, it’s tough to get him to take into account the things you need that money for. After two or three years, maybe you’ve gotten a raise. In the same two or three years, the cars are older and need bigger repairs. The house is older and it needs work, too. And inflation has probably raised your grocery bills. When the trustee asks for more, your lawyer can fight back. But the trustee wins a lot.
Conclusion: Many people will use Chapter 13 to Stop Foreclosure in Virginia
A lot of people in Northern Virginia have gotten through the worst of the housing crisis. The value of your house may be back near what you paid for it. That means you have more incentive to try to keep it. (And the banks lose less money if they foreclose.)
I’m Northern Virginia Bankruptcy lawyer Robert Weed. You can see me in Annandale, Stafford, Sterling or Woodbridge if you need to use Chapter 13 to stop foreclosure in Virginia.
But while the housing crisis is most over, the recession really isn’t. Most people are making less than they were, and few have gotten raises.
I expect that means more and more people will need to stop foreclosure in Virginia. If the loan mod process doesn’t work, Chapter 13 can be the way to go.
I’m Northern Virginia bankruptcy lawyer Robert Weed. I have offices in Annandale, Stafford, Sterling and Woodbridge. Serving Fairfax, Loudoun, Prince William, and all of Northern Virginia. If this applies to you, please make an appointment for a Chapter 13 consultation. If you need to stop foreclosure in Virginia, I hope to see you real soon!
If you don’t live in Northern Virginia, you should look at NACBA.