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I’ve Been In Bankruptcy for a While and Now…?

Chapter 13 Process in Illinois

Q: What if I get behind on my mortgage payments while in bankruptcy?

A: If you are in a Chapter 7 bankruptcy and plan to keep your home, you will need to bring the payments current immediately. Otherwise, the mortgage company may file legal paperwork with the bankruptcy court called a Motion for Relief from Automatic Stay asking the court for permission to foreclose on your home.

If you are in a Chapter 13 bankruptcy, the mortgage company will file a Motion for Relief from Automatic Stay asking for permission from the court to proceed with foreclosure. In some cases you, through your attorney, may be able to work out a repayment plan with the mortgage company for the amount you have fallen behind since filing your bankruptcy. However, there are no guarantees this will be possible.

Q: What happens if I get behind on my car payment while in bankruptcy?

A: If you get behind on your car payment while in Chapter 7 bankruptcy, the finance company may file a Motion for Relief from Automatic Stay requesting that the bankruptcy court allow the finance company to repossess the car. In most Chapter 13 bankruptcy cases, your car payments will be included in your payments to the Chapter 13 bankruptcy Trustee if you are purchasing the vehicle. If you are leasing the vehicle, you will make lease payments directly to the finance company. If you get behind in your payments to the Chapter 13 bankruptcy Trustee or to the finance company for leases, the finance company may file a Motion for Relief from Automatic Stay requesting that the bankruptcy court allow them to repossess the car.

Q: What is a Motion for Relief from Automatic Stay?

A: A motion for relief from automatic stay is filed by one of your creditors after the bankruptcy has been filed. It is the legal process of the creditor requesting the court’s permission to proceed with legal action against you. This is filed by secured creditors such as a mortgage company or auto finance company, if you are not making payments to the Chapter 13 bankruptcy Trustee in a Chapter 13 bankruptcy.

Q: What if I want to refinance my house while in bankruptcy?

A: It is possible to refinance your home while in bankruptcy, but you will need to obtain the bankruptcy court’s permission. You may want to start the process by seeking preliminary financing from a bank or mortgage company. At that point you should contact your attorney about filing the motion with the court to obtain permission. Keep in mind that most mortgage companies require Chapter 13 debtors to show a minimum of 12 months timely and consecutive payments to your mortgage company or companies and Chapter 13 bankruptcy Trustee before granting preliminary approval.

Q: What if I need to sell my house or car during bankruptcy?

A: You will need to obtain court permission to sell your home or car during the bankruptcy process. This will require a motion to be filed with the court and an order signed by the judge. You should contact your attorney to discuss the process and time frame for obtaining court approval.

Q: What if my car or truck is destroyed in an accident?

A: Whether the vehicle is being purchased or leased will have some impact on the answer. However, it is important you contact your bankruptcy attorney’s office right away to determine how you will need to proceed. If you are in a Chapter 13 bankruptcy and need to obtain a new vehicle, you will need to work with your attorney to complete the paperwork necessary to obtain the Chapter 13 bankruptcy Trustee or court’s approval.

Q: What if I lose my job during my bankruptcy?

A: If you lose your job while in a Chapter 13 bankruptcy, you should contact your attorney to discuss the likelihood of securing another job soon, whether you are receiving unemployment or other income. The attorney can provide options to you given your specific situation.

Q: What if I am sick for an extended period of time, in an accident, or on disability or workers compensation while I am in bankruptcy?

A: It may be possible to modify your Chapter 13 bankruptcy plan payments or file a Motion for Moratorium depending on the amount of time you will be out of work or on a reduced income. Unfortunately, not all clients may be eligible for a modification. Your attorney will work with you to identify the option(s) that will work best for you.

Q: Why would the Trustee increase my payments after I’ve been in bankruptcy for a year or more?

A: Your payments are usually increased when you have failed to make payments to the Trustee, the mortgage company increases your house payments due to a change in your interest rate or escrow and/or you have additional claims filed in your bankruptcy. Additional claims may be for taxes you have failed to pay to the city, county, state or Internal Revenue Service after filing your bankruptcy.

In addition, the Trustee will pay attorney fees for items outlined in the Disclosure to Debtor(s) of Attorneys Fee and approved by the Court. This schedule was part of the bankruptcy contract and also included in your bankruptcy filed with the Court.

Q: How can I find out what I owe on my bankruptcy?

A: To obtain an estimate of the amount owed in your bankruptcy you may register with the National Data Center. You will be able to obtain a login and password that allows you to access your account. Should you need an “official” payoff, you must obtain that through your attorney’s office.

Q: What does it mean to convert a Chapter 13 bankruptcy to a Chapter 7 bankruptcy?

A: If you discover while in a Chapter 13 bankruptcy that you can no longer afford to make payments to the Chapter 13 bankruptcy Trustee due to the loss of employment, change in income, etc., you may qualify to voluntarily convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy. You may also decide to convert your Chapter 13 bankruptcy to a Chapter 7 bankruptcy if you decide you no longer want to keep your home or car. You should contact your attorney to discuss whether you are eligible to convert to a Chapter 7 bankruptcy. Under certain circumstances, the Chapter 13 bankruptcy trustee may recommend that your case be involuntarily converted to a Chapter 7 bankruptcy.

Q: Can I convert a Chapter 7 bankruptcy to a Chapter 13 bankruptcy?

A: If you get behind on house or car payments while in a Chapter 7 bankruptcy and risk losing the property, you may convert your Chapter 7 bankruptcy to a Chapter 13 bankruptcy as long as you meet the qualifications to file a Chapter 13 bankruptcy, primarily having sufficient income to make the plan payments under Chapter 13 bankruptcy.

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