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Archive for the ‘mortgage arrears’ tag

Keeping Your Home through Chapter 7

May 13th, 2016 at 7:00 am

Chapter 7 usually lets you retain your home if you are current (or not too far behind) on your mortgage payments (& other home-based debts).


Whether you can keep your home when filing a Chapter 7 “straight bankruptcy” mostly depends on two questions: 1) Are you current or close to current on your mortgage and other debts against your home, and 2) Is the equity in your home protected by the applicable homestead exemption?

Today we focus on your mortgage. Upcoming blog posts will hit other possible kinds of liens against your home, and then the homestead exemption.

Chapter 7 in General

When it comes to your home, Chapter 7 is designed for more straightforward situations with your mortgage and other home-related debts.

Under Chapter 7 if you want to you can generally keep possession of the collateral that is securing any of your debts. You just need to be current or at least close to current on that secured debt.

Whether the secured debt is a vehicle loan, furniture purchase contract, or home mortgage, if current or almost current you would usually be able to keep the vehicle, the furniture, or the home.

(Under most Chapter 7 cases you can usually also get out of owing anything on such secured debts by surrendering the collateral to the creditor. But today we’re focusing on keeping collateral, specifically your home.)

If Current on Your Mortgage

Do you want to stay in your home, are current on your mortgage payments, and will be able to keep up those payments after writing off all or most of your other debts? Then your home and your mortgage will very likely proceed through a Chapter 7 case smoothly without any change.

Compliance with Other Mortgage Requirements

You also need to be in compliance with other conditions of your mortgage contract. Two of the most common problematic ones involve keeping current on homeowner’s insurance and property taxes.

In most mortgage contracts, falling behind on either of these is considered a breach of the contract. So not being current on insurance or property tax constitutes separate legal grounds for foreclosure even if you’re current on the mortgage payments themselves.

This makes sense. If there’s no insurance in effect, your home could be destroyed in a fire and your mortgage lender would have virtually no collateral protecting their debt. If the property tax entity forecloses on the home, the mortgage lender would be foreclosed out along with you.

Often your monthly mortgage payment includes an “escrow” amount covering the homeowner’s insurance premium and property taxes. If so, then as long as you’re current on your mortgage you’re also current on these other obligations.  But sometimes the “escrow” payment only covers one of these, requiring you to pay the other on your own.

If Not Current on Your Mortgage But Not Too Far Behind

Even if you ARE a few months behind on your mortgage payments, you may still be able to file a Chapter 7 case. It depends.

A Chapter 13 “adjustment of debts” may be the better option if you are behind on your mortgage payments. It can also be better if you are behind on insurance or property taxes, have a second mortgage, or have other liens on your home, such as from income taxes or child/spousal support.

But a Chapter 13 case takes SO much longer than a Chapter 7 one—usually 3 to 5 years instead of about 4 months. It has other potential disadvantages as well. So you have some incentive to try to file a Chapter 7 case if you can.

In a Chapter 7 case your mortgage lender will almost for sure require you to catch up on any missed payments. Usually you will have to make your regular monthly payments PLUS enough extra each month to pay off the arrearage within a certain length of time. Usually you will be given no more than a year or so to catch up.

So, you and your attorney need to look closely at your after-bankruptcy budget to figure out how much you could afford to pay extra each month towards catching up. Hopefully since you’re no longer paying the debts being writing off in your Chapter 7 case you’ll be able to pay enough.

How Much Time to Catch Up?

How many months you’d have to bring your account current would naturally determine how much you have to pay in catch-up payments each month. And how much time your particular lender will allow depends on its policies and on your particular circumstances.

Your attorney, who deals with mortgage lenders about such matters every day, likely has experience with your lender and will counsel you about this.

Also, you may qualify for a loan modification—a re-writing of the mortgage terms. The balance is never reduced, but the missed payments could perhaps be wrapped into the new modified mortgage. Then you would no longer have to catch up on the missed payments, but just pay the new mortgage payments going forward. Again, ask your lawyer about the modification option.  

If You Can’t Afford to Catch Up Fast Enough

The reason that Chapter 13 can be a better way to save your home is that it gives you much more time to catch up on late mortgage payments. It can usually buy you as much as 5 years.

Plus as mentioned above Chapter 13 can help with other home- related debts, such as second (or third) mortgages, property taxes, and income tax liens.

Our very next blog post will address how Chapter 13 buys you more time if you need it.


A Fresh Start on Your Home If You’re Behind on Your Mortgage

January 15th, 2016 at 2:00 am

If you are behind on your home mortgage & want to keep your home, do a mortgage modification, a forbearance agreement, or a Chapter 13 plan.


The Three Options

Here’s a summary of 3 ways to get a fresh start on your mortgage:

  • A mortgage modification is a permanent restructuring of one or more of the terms of the mortgage to make it more affordable. This usually involves a reduced interest rate, the conversion of a variable interest rate to a fixed one, an extended payback period (often to 40 years), or a deferral of paying part of the principal. An actual write-off of any of the principal is very rare. A number of governmental and in-house lender programs may be available.  The process can be complicated and eligibility requirements are quite rigid. The reason is that they are intended for homeowners who neither make too much nor too little—who definitely need the help but also stand a decent chance of successfully meeting the terms of the modification.
  • With a forbearance agreement the terms of the mortgage don’t change but the lender agrees not to foreclose as long as you catch up the mortgage through a schedule of extra payments. Payment of the arrearage—the amount you are behind—is spread out over a certain number of months. The number of months you are given to catch up varies with each lender and with your circumstances, and tends to range from 3 to 12 months.  
  • A Chapter 13 payment plan also doesn’t change the terms of your first mortgage but gives you much more time to catch up—usually as much as 3 to 5 years. You also are given some flexibility about paying certain other important creditors ahead of or along with the mortgage arrearage. You may be able to “strip” a second (or third) mortgage from your home’s title so that you don’t have to pay any or most of that mortgage. That can get you closer to building equity in your home. You also have certain advantages in dealing with other liens on your home, such as those from property and income taxes, child or spousal support, a home repair contractor, or a homeowner’s association.  

When to Use Each Option

  • A mortgage modification is appropriate if you currently can’t afford your mortgage payment and don’t expect to be able to in the near future. Your income and other circumstances must show that you can’t afford the current mortgage but could afford the modified one, based on criteria that may or may not be realist in your circumstances.  
  • A forbearance agreement is appropriate if you’ve missed some of your mortgage payments, and can now afford to make both the regular monthly payment and a temporary catch up one to bring the debt current quite quickly. This is often used in conjunction with a Chapter 7 “straight bankruptcy” case, using the “discharge” (write-off) of other debts as the means to free up monthly cash flow for the catch-up payments.  
  • Chapter 13 is the appropriate option in two main circumstances. First, if you don’t qualify for a mortgage modification but also can’t catch up the mortgage arrearage fast enough to satisfy your lender, Chapter 13 can be the best fallback alternative since it gives you much more time to catch up. Second, Chapter 13 may be the best choice because of the other advantages it provides, either with other liens against the home (such as stripping a second mortgage) or with debts unrelated to the home, such as income taxes or marital obligations.

We’ll look more closely at these three ways of getting a fresh financial start on your home mortgage in our next three blog posts.


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