Bankruptcy And Foreclosure. Chapter 7 Versus Chapter 13

Founding Member of Moshes Law, P.C.
During his years of practice, Yuriy has concentrated in litigation and real estate transactions as his areas of expertise.
bankruptcy and foreclosure

Foreclosure is a scary prospect for any homeowner and can be a difficult situation to deal with. But it’s important to understand that there are a number of actions that a homeowner can take to mitigate the effects of or even stop a foreclosure. It may be surprising to learn that filing for bankruptcy, which for many carries a very negative connotation, can also help delay or even remedy foreclosure. This is not to say that filing for bankruptcy is at all ideal or the right course of action for everyone in this situation. But it is one possible mechanism for dealing with a home foreclosure.

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Two bankruptcy chapters are particularly relevant in the context of a foreclosure – Chapters 7 and 13. One or neither of these may be the right step for you depending on your specific situation. The primary difference between the two is the form of bankruptcy that is taking place; Chapter 7 involves liquidating your assets, whereas Chapter 13 involves reorganizing your finances. Basically, this means that in a Chapter 7 bankruptcy, some of your assets will be sold to pay off your debts, whereas in a Chapter 13 bankruptcy, your repayment plan will be restructured to better accommodate your financial situation. Chapter 7 bankruptcy is the most common type of bankruptcy filing and may be the right choice for those who own few assets and have a modest income. Homeowners who want to retain their property, however, should probably look to Chapter 13 bankruptcy. It’s important to understand all of the requirements and consequences before filing for a chapter.

There are a lot of things to consider when deciding how to proceed. If you need a lawyer for foreclosure defense in New York, it’s crucial that you consult with someone knowledgeable and competent in this area. Get a free consultation from one of the best in Greater New York. Yuriy Moshes has years of experience successfully helping hundreds of homeowners. Real estate attorneys are required to be knowledgeable in several branches of the law. A free consultation with our firm could give you the ease of mind you need.

How Can Bankruptcy Help With Foreclosure

Filing for bankruptcy can be the right move when facing a foreclosure, but before making any decisions, it’s important that you understand your financial situation and the consequences of filing. In essence, both bankruptcy and foreclosure signal that you are unable to repay your debts. But there are a few key differences between the two. For one, in a foreclosure, the lender initiates the process, whereas you, the homeowner, would initiate a bankruptcy filing. Another difference is in your financial obligations to the lender following the sale of your property. If your property is put up for sale, you may still owe money to the lender in the case of a foreclosure if proceeds from the sale don’t fully make up for the debt. In a Chapter 7 bankruptcy, for example, all debt would be discharged. 

Filing for bankruptcy also triggers an automatic stay, which temporarily stops the lender from foreclosing on your home (refer to the New York State foreclosure timeline for more information about where you are in the foreclosure process) and also pauses actions by other creditors. To figure out whether filing for bankruptcy would be right for you, read below about the differences between Chapter 13 and Chapter 7 bankruptcy. As mentioned, you may also want to acquire the help of a foreclosure defense attorney to guide you through the process of making a decision.

How to Use Chapter 13 Bankruptcy to Help You

Chapter 13 bankruptcy is sometimes referred to as a “wage earner bankruptcy.” It is designed for those with sufficient disposable income to warrant a reorganization of debt, as opposed to liquidation assets. A Chapter 13 bankruptcy can give you time (from three years to a maximum of five) to cure the mortgage default. Perhaps you have a reasonable amount of income to cover your bases and make some repayments but are not able to keep up mortgage payments as originally planned. In the restructuring that occurs in a Chapter 13 bankruptcy, you would be able to propose a repayment plan that better accommodates your financial situation.

The filing process begins with the bankruptcy court serving your area, and an impartial bankruptcy trustee would be assigned to you to supervise your case. An “automatic stay” would go into effect, pausing a majority of collection actions against your property and stopping your lender from going forward with a foreclosure sale. At the end of a Chapter 13 bankruptcy, much of the debt remaining (after your repayment period of three to five years) will be discharged if you otherwise stick with the plan.

You should strongly consider filing Chapter 13 over chapter 7 if you want to keep your home, as in a Chapter 13 bankruptcy, foreclosure is stopped. Retain the help of a real estate law firm if you need more guidance on what your options are in the event of a foreclosure.

Chapter 13 Questions

Can I keep my home in Chapter 13 bankruptcy?

A major benefit to filing for Chapter 13 bankruptcy is that you will not lose your home (or any other property) if you are able to keep up with payments according to the repayment plan you submitted to the Chapter 13 trustee. 

What If My Income Increases During Chapter 13?

An increase in income may change your repayment plan depending on the extent of the increase and whether other aspects of your finances (e.g. expenses) have changed. A large income boost that elevates your after-tax pay and disposable income has a high likelihood of increasing your monthly repayment. The original repayment plan will often include a provision regarding your notification obligations to the trustee in the case of income increase. If the language is silent on this matter, it’s advised that you consult a bankruptcy or foreclosure attorney.

Can A Chapter 13 Go Longer Than 60 Months?

No, the maximum length of a Chapter 13 bankruptcy is 60 months or 5 years. 

What Happens To Secured Debt In Chapter 13?

When it comes to managing secured debt in a Chapter 13 bankruptcy, you have a bit of choice in the matter. You can either retain the secured property and continue paying it off in monthly installments, or you can surrender the collateral to the lender. A home mortgage is one type of secured debt, as are car loans and tax liens.

How Many Times Can You File Chapter 13?

In New York, there are no restrictions on the number of times you can file for bankruptcy. That said, there are certain restrictions with regard to timing if you receive a discharge of debt. A subsequent Chapter 13 filing would require that you wait four years from the date you previously filed. The timing restrictions, however, do not apply if you did not experience any discharge of debt in the previous filing. 

Can You Refinance Your Home During Chapter 13?

It is possible to refinance your mortgage in a Chapter 13 bankruptcy, but you must normally at least a year. For Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, you will have to demonstrate that you have been able to stick to your repayment plan for at least a year and acquire permission from a bankruptcy court. For conventional loans, you generally have to wait two years after you’ve completed your repayment plan.

Pros And Cons Of Bankruptcy Chapter 13

There are certain benefits and drawbacks to filing for Chapter 13 Bankruptcy. To sum, you may want to consider these pros and cons of bankruptcy Chapter 13:


  • Allows debtors to keep property
  • Allows reconfiguration of debt to facilitate catching up on missed payments (towards mortgage, car, nondischargeable priority debt, etc)
  • Debt qualifying for discharge are in some cases broader than those qualifying for discharge in Chapter 7;


  • Must make monthly payments to the trustee for a period of three to five years
  • May have to pay back a portion of general unsecured debts at the same time

How to Use Chapter 7 Bankruptcy to Help You

Chapter 7 bankruptcy, often referred to as traditional bankruptcy, is what most people think of when bankruptcy is mentioned. It involves liquidating your assets to help pay off your debt. Instead of devising a repayment plan like in a Chapter 13 bankruptcy, you would work with a bankruptcy trustee to sell your property, using the proceeds to pay creditors. New York state does allow for certain exemptions to this sale. The greatest advantage to a Chapter 7 bankruptcy is that the debtor generally gets to discharge a significant amount of debt in a fairly short amount of time (the process generally takes between three and five months). In a sense, you would be able to get a “fresh start,” given that you would no longer have to worry about the debt that is discharged.

chapter 7 versus chapter 13

Your eligibility to file for Chapter 7 bankruptcy depends on your financial situation with regard to your income and expenses. The “means test,” a formula that takes into account monthly income and the extent of your expenses, will determine whether you are eligible to file. However, if your income relative to your household size is below the New York median, you would be eligible to file for Chapter 7 without having to use the means test. 

Although relief from debt via Chapter 7 discharge is a major upside to filing for this chapter, there are certain caveats. Some unsecured debts, such as child support and alimony, will not be discharged in Chapter 7 bankruptcy. Moreover, you may still be liable for debts from tax and student loans. Another downside is that you may lose some of your property, including your home. If your property is considered nonexempt in New York, the trustee may be able to sell the property to help pay off your debts.

Chapter 7 Questions

What If I Get A Raise After Filing Chapter 7?

Eligibility for Chapter 7 bankruptcy is based on your finances at the time you file – your financial situation after filing typically does not affect your eligibility. There are some exceptions to this general rule, particularly if the amount of the raise is great. You should seek the advice of a bankruptcy attorney to ensure that you follow the proper protocol.

How Many Times Can You File Chapter 7 Bankruptcy?

There is technically no limit in the number of times you can file for bankruptcy. There is, however, a limitation with regard to timing. That is, you must wait at least 8 years from the time you filed your previous Chapter 7 bankruptcy to be able to file again.

How Long Will Chapter 7 Delay Foreclosure?

Chapter 7 will be able to delay the foreclosure for about 4 months. Keep in mind that in a Chapter 7 bankruptcy, foreclosure by the lender does not stop.

Does Chapter 7 Stop Foreclosure?

No, a Chapter 7 bankruptcy does not stop foreclosure; it only delays it.

Do You Lose Your House In Chapter 7?

This will depend on whether your equity in the house is exempt. Please refer to the list of New York bankruptcy exemptions. You will also be able to include certain federal exemptions to your NY exemptions.

Pros And Cons Of Bankruptcy Chapter 7

There are several pros and cons to filing for Chapter 7 bankruptcy. To sum, some of these benefits and drawbacks are:


  • Allows debtors to discharge a substantial amount of debt in a short period of time
  • Provides debtors the opportunity for a “fresh start”


  • The debtor may lose certain nonexempt property
  • It does not stop foreclosure; it only delays it
  • There is also no opportunity to catch up on missed payments to avoid foreclosure or repossession
  • Certain kinds of debt will not be discharged

Difference Between Chapter 7 And 13 Bankruptcy

This table summarizes some of the differences in going with Chapter 7 versus Chapter 13 bankruptcy in the context of a foreclosure. It may be helpful to retain a lawyer to help guide you through the foreclosure process and determine whether filing for bankruptcy may be right for you. If you need a lawyer for foreclosure defense in New York, it’s crucial that you consult with someone knowledgeable and competent in this area. Get a free consultation from one of the best in Greater New York.

Yuriy Moshes has years of experience successfully helping hundreds of homeowners. Real estate attorneys are required to be knowledgeable in several branches of the law. A free consultation with our firm could give you the ease of mind you need.

 Chapter 7Chapter 13
Type of BankruptcyLiquidationReorganization
Will filing stop foreclosure?No, there would only be a delayYes, if you make the monthly payments according to your repayment plan
EligibilityEligibility is based on income expenses.  Refer to the “means test” if your income relative to household size is above the NY median.Eligibility is based on income – your income must be high enough to be able to make monthly payments towards the mortgage (and other debts) for three to five years
Do you get to keep my home?It will depend on whether your property is considered exempt property in New YorkYes, if you make the monthly payments according to your repayment plan
How long will it take to discharge my mortgage?Typically three to five monthsThree to five years, depending on your repayment plan
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Do I Qualify For Bankruptcy?

Whether you qualify for bankruptcy depends on the chapter you want to file. Review the information above, and importantly, consider consulting a foreclosure defense attorney or bankruptcy attorney to help guide you in making a decision.

Can I File Bankruptcy Without A Job?

Unemployment should not disqualify you from filing for bankruptcy, but you have to consider which chapter you want to file. It likely would not disqualify you from Chapter 7 bankruptcy, but you may not meet the income requirements for filing a Chapter 13 bankruptcy.

Should I Tell Creditors I Am Filing Bankruptcy?

It is highly recommended that you speak with a bankruptcy attorney or someone who has knowledge in this area before making any moves. The attorney can also correspond with the creditor on your behalf. There are instances in which it may make sense to tell the creditor. For example, perhaps you are not sure that you want to move forward with bankruptcy and want to instead amend your payment plan; maybe you are in the process of recovering from some major life event and know that you will be able to pay back the debt, provided that there are some minor adjustments to the original payment plan.

It may make sense in this instance to negotiate with the lender. However, if you are intent on filing for bankruptcy and know that debt repayment would not be feasible with just minor changes, it may make more sense to stay silent to avoid giving away information that would later be used against you. Creditors may also attempt to accelerate the process of repossessing your secured property before the complexities of bankruptcy set in. Again, retaining the help of an expert attorney would help you avoid big mistakes.

Can You Switch From Chapter 13 To 7?

If you have not received a Chapter 7 discharge within the last eight years, you are most likely eligible to make the switch. There may be a fee associated with the conversion.

What Is The Average Monthly Payment For Chapter 13?

The average is around $500, but there is a high likelihood that this figure will not be applicable to you, as your monthly repayment will depend on your income. Looking at your income and financial situation will allow you to gauge for what to expect.

What Is The Cost To File Bankruptcy?

At the time of this writing, the filing fee is around $338 for Chapter 7 and $313 for Chapter 13. To be eligible for a fee waiver, your income must fall below 150% of the poverty line in New York. You cannot request a fee waiver for Chapter 13 bankruptcy.

What Are The Negatives Of Filing For Bankruptcy?

There are several cons to filing for bankruptcy.

1. Your credit score will decrease. The impact to credit will depend on your score prior to filing. The worse the score, the less likely the impact will be severe.
2. The bankruptcy will show on your credit report for up to ten years, although it could be longer if you apply for a significant loan.
3. Having bankruptcy on your report may disqualify you from a mortgage and certain loans for some period of time. You may otherwise have to pay greater interest and/or fees when you qualify for financing.

Getting Help From Foreclosure Defence Attorney 

If you need a lawyer for foreclosure defense in New York, it’s crucial that you consult with someone knowledgeable and competent in this area. Get a free consultation from one of the best in Greater New York.

moshes law

Yuriy Moshes has years of experience successfully helping hundreds of homeowners. Real estate attorneys are required to be knowledgeable in several branches of the law. A free consultation with our firm could give you the ease of mind you need.

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