When Should Chapter 13 Be Used as a Stalling Tactic?

In a previous post we discussed how some clients file a Chapter 13 bankruptcy as a legal stalling tactic, one that gives them some time to maneuver into a better position. As you can imagine, this isn’t a strategy one embarks on lightly.

It can, however, be an appropriate strategy when one is using a Chapter 13 bankruptcy as a form of foreclosure defense, as long as you’ve got a next step.

One next step may be to work out a loan modification. It is possible to do so during a Chapter 13 bankruptcy. In fact, in some cases banks are more willing to work out a modification when they know the courts are overseeing your financial life and your other debts have been brought under control.

In a similar vein, some of our clients have successfully refinanced their mortgages during their Chapter 13 bankruptcies, and the new, lower payments have been enough to ensure the home became affordable for them. As you might imagine, the court has rules about refinancing and you’ll need a good attorney to guide you through them successfully.

Finally, Chapter 13 can give you the breathing room you need to get your house sold. If you’ve got a little equity you can wipe out one of your biggest debts that way and start over in affordable housing. Once you’ve sold the home you may not need the bankruptcy anymore. You won’t get to keep the house, but you won’t have a foreclosure on your credit, either.

Theoretically you could use this technique with other assets too, like your car. However, there are risks associated with it. Normally we wouldn’t recommend using it for anything less than your largest investment: your home.

Why must you be so careful about using Chapter 13 bankruptcies this way? If you take your steps, let the case get dismissed and need the protection from your other creditors in the future you could find yourself having to refile.

Refiling multiple times could mean losing the protection of the automatic stay. The automatic stay is one of the most powerful reasons one files for bankruptcy in the first place. The last thing you want to do is put it in jeopardy.

Fortunately, using Chapter 13 as a legal tactic is not the only way to prevent foreclosure. As Philadelphia foreclosure defense attorneys we are happy to say it’s just one tool in our toolbox.

If you’re trying to keep your home, call us. And call us if you’re just trying to keep a foreclosure off your credit, too.

Our free consultations and reasonable payment plans may be the key to protecting yourself. We can help you choose the right way forward.


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