Can I File Chapter 13 in Order to Stop a Foreclosure Without Including the Rest of My Debts?

A Chapter 13 bankruptcy differs from a Chapter 7 in the fact that it is a debt reorganization and repayment plan for settling with your creditors. Conversely, a Chapter 7 usually provides immediate financial relief by discharging a number of those debts. When clients approach us here at Clark & Washington, they have many questions for us to answer when assisting them with their financial dilemma. One of the more common questions that we have fielded is whether a Chapter 13 can be filed in order to stop foreclosing proceedings on their home without having to include the rest of their monthly debts.

The simplest answer we can give you is “no” and can explain why. Under Chapter 13 of the US Bankruptcy Code, or any other bankruptcy Chapter for that matter, you are required by law to list ALL of your debts. In other words, you can stop the foreclosure process on your home with a Chapter 13 filing. However, you cannot omit payments on your vehicle, to the IRS, your credit card accounts, and your past-due medical expenses. In the simplest of terms, you cannot omit money that you owe, even if it is to a brother, sister, or parent.

Whenever your Chapter 13 attorney and you prepare your Chapter 13 reorganization and repayment plan, creditors who are similarly situated must be treated in the same manner. For instance, if you and your unsecured creditors agree to a repayment of 10 cents on the dollar, this does not mean that you can pay your brother back at 100% while you repay all your creditors at the 10% rate.

On a cautionary note, you should be careful in regards to making any lump sum payments to certain creditors and not others prior to filing your Chapter 13. Specific language regarding the prohibited transfers of funds can be found under Section 547 of the Bankruptcy Code and are referred to as “preferences.” Preferential payments which are prohibited under this section include those payments which are made outside the course of ordinary business.

Additionally, you should be weary of giving away your assets in order to protect them from creditors involved in your Chapter 13 case; this may also be discovered and reversed should you end up filing bankruptcy. Clark & Washington has years of experience in the US Bankruptcy laws and are here to help you should you need assistance or have any further questions regarding your financial dilemma.