Tennessee is a non-judicial foreclosure state. This means that your house may be foreclosed on without the lender having to go to court. Generally you will receive notice via mail 20 days or more before the scheduled sale date. The sale is performed by a trustee, not the lender.
Filing a Chapter 13 bankruptcy before the scheduled foreclosure sale will automatically stop the sale. When you file a bankruptcy an automatic stay immediately goes into effect. This automatic stay means that all creditor actions against you and your property must stop, including any foreclosure sale. This means that the automatic stay stops or voids any foreclosure sale of your property.
There are several things you will need to do before you may file a Chapter 13 bankruptcy. You will need to have filed your taxes for the most recent year. You will need to provide proof that you filed these taxes to your attorney. A list of all of your creditors with their addresses is also needed. You will also need to provide pay advices for the previous 6 months prior to filing bankruptcy. Finally, a government issued photo ID and proof of your social security number is required.
Chapter 13 differs from Chapter 7 by having a repayment plan. You propose to pay your creditors, including your mortgage lender, in the Chapter 13 Plan. The Plan will always include paying the regular mortgage note plus an amount that will be enough to pay off the arrears over the life of the Plan – up to 60 months.
If property has a lien on it you must pay for that property in a Chapter 13 bankruptcy if you wish to keep it. These debts are called “secured” debts, for example a debt on a car or a mortgage. Debts that have no property attached are called “unsecured” debts. In a Chapter 13 bankruptcy unsecured debts provide more flexibility in payment, you can pay all or nothing and everything in between on these debts – depending on things like the value of all your property and your income level.
Automobiles and certain other property, but not homes, are subject to cram downs. A cram down occurs when a secured debt is “cram downed” to the value of the property that secures the debt. For example, if you owe $25,000 on a vehicle that is worth $10,000 then a cram-down would result in the secured debt being only $10,000 and the remaining $15,000 would be unsecured. There are special rules for accomplishing a cram-down.
Once you propose a Chapter 13 Plan it must be “confirmed” for it to go into effect. Once a Chapter 13 Plan is confirmed the Chapter 13 Trustee begins to distribute your funds to your creditors. You make payments to the Chapter 13 Trustee either directly or through a wage deduction.
Once you have paid into your Chapter 13 Plan as you proposed and completed all payments you will be current on your mortgage. At that time you will resume paying your mortgage directly to the lender. Any unsecured debts that were not paid during the bankruptcy will be “discharged” – meaning creditors cannot take any action to collect the debts.