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Chapter 13 Gives the Most Time to Cure Your Mortgage

July 29th, 2019 at 7:00 am

Chapter 7 provides no mechanism to cure your mortgage. But Chapter 13 does provide a powerful, realistic, and practical way to do so. 

 

Chapter 7 “Straight Bankruptcy” and Chapter 13 “Adjustment of Debts”

Chapter 7 and Chapter 13 are the two main consumer bankruptcy options.

Most Chapter 7 cases only takes a few months—usually 3 to 4 months—from filing to completion. A Chapter 13 case usually takes 3 to 5 years. At first this extra length of time may seem like a disadvantage. However Chapter 13 puts this time to good use, accomplishing things that you can’t under Chapter 7.

Essentially, Chapter 13 gives you the 3-to-5-year period to cure your mortgage, while protecting your home throughout that time.

The Chapter 7 Shortcomings

Chapter 7 leaves you at the mercy of your mortgage lender if you’re behind on the mortgage.

Chapter 7 protects you from the lender for only the 4 months or so that it lasts. (The protection might even be shorter if the lender asks the bankruptcy court for permission to end the protection sooner.) During that time you may be able to work out a “forbearance agreement” with your lender. This agreement nails down the terms for curing your mortgage.

The problem is that you have precious little leverage in this negotiation. If you are not too far behind on your mortgage, your lender may be give you a few months, maybe up to a year, to catch up. But the lender has all the leverage and you have almost none. It could just begin or resume a foreclosure as soon as your Chapter 7 case is over. With that leverage it can make you try to catch up unrealistically fast, requiring huge extra catch-up payments each month. This makes more likely that you won’t succeed in always making the required payments. And at best, if you do make those large payments and do catch up, it’ll be a tough and risky experience.

The Chapter 13 Solution

In contrast, as mentioned above Chapter 13 gives you much more time, and protects your home in the meantime.

Instead of the catch-up payment amount being imposed on you, your personal realistic budget determines the amount. The payments can be stretched out over as much as 5 years. You may even be able to delay or lessen these catch-up payments if you have other even more urgent debts to pay. Also, if your circumstances change midstream, you’d likely be able to adjust the payments.

These and other advantages effectively lower the catch-up payments, making more likely that you’ll successfully cure the mortgage and keep your home.

Doing Your Part

You can rather easily lose the multi-year protection of Chapter 13 if you don’t fulfill some important obligations. To maintain the protection you have to:

1. Keep current on your court-approved Chapter 13 payment plan. Your catch-up payments are incorporated into the single monthly payment you make towards virtually all your debts. Not paying this to the Chapter 13 trustee each month gives your mortgage lender cause to ask permission to foreclose. It also gives cause for your case to be thrown out altogether. 

2. Keep current on the regular monthly mortgage payments. Chapter 13 gives you the means to slowly cure your arrearage. Falling further behind in the middle of your case seriously jeopardizes your case.

3. Pay your homeowner’s insurance on time. Don’t let your insurance lapse. That really scares your mortgage lender (and should scare you, too). Your lender would likely “force-place” its own insurance (which protects it but not you). It would then make you pay the exorbitant cost of this insurance, putting you that much further behind. This is also an independent basis for it to ask permission to foreclose.

4. Pay the property taxes. Falling behind on property taxes also gives the mortgage holder a separate basis for asking the bankruptcy court for permission to foreclose. The budget you work out with your bankruptcy lawyer will include money for these taxes, to prevent this from happening.

 

Bankruptcy’s Many Benefits for Your Home

June 17th, 2019 at 7:00 am

Bankruptcy can save and protect your home in many different ways. One of these may be just what you need. Or you may use them in combination.   

 

We’ve got 15 distinct ways that bankruptcy can either save your home now or protect it in the near future. Here are the first 7—the remaining 8 we’ll give you next time:

1. Home equity protection:

 You can just about always protect any equity you have in your home through bankruptcy. You can do so through Chapter 7 “straight bankruptcy” if the amount of equity is no more than your applicable homestead exemption. (This is based on state or federal law, depending on your state.) Even if you have no equity in your home now, bankruptcy can protect equity that you build up going forward. See Section 522(b)(2), (b)(3), and (d)(1) of the U.S. Bankruptcy Code.

2. Home equity larger than homestead exemption: 

If your equity is larger your applicable exemption, then a Chapter 13 “adjustment of debts” can usually protect it better than Chapter 7. That’s because it give more time and a better way to preserve that equity while under bankruptcy protection. See Section 1325(a)(4) of the Bankruptcy Code.

3. Free up cash flow for your mortgage payments:

If you’re not behind on your mortgage, write off your other debts to have money for your monthly mortgage payments. Talk with your bankruptcy lawyer to find out which debts will likely go away, and which may not. He or she will also help you create a post-bankruptcy budget. Hopefully it will showing that you can afford the mortgage after getting rid of the other debts. See Sections 727 and 1328 of the Bankruptcy Code.

4. Catch up with a forbearance agreement:  

If you’re not far behind on your mortgage, write off your other debts through Chapter 7. Then catch up on your missed mortgage payments through a forbearance agreement with your mortgage holder. Instead of paying other debts, put your money into saving your home. A forbearance agreement gives you a specific amount of time to get current, usually through designated extra payments.  

5. More time to catch up:

Chapter 13 gives you 3 to 5 years to catch up on your mortgage. This is generally much more time than you’d get through a forbearance agreement. With the catch-up payments spread out longer, they’re much smaller, and so more affordable. Throughout those catch-up years your mortgage lender can’t take collection or foreclosure action as long as you follow the agreed payment plan. See Sections 1322(b)(2) and 362(a)(4) and (5) of the Bankruptcy Code.

6. Prevent property tax foreclosure:

Pay back property taxes through a Chapter 13 payment plan. Again, you have 3 to 5 years to catch up, and protection from tax foreclosure in the meantime. Plus your budget will includes money for future property taxes so you won’t need to worry about that going forward.

7. “Strip” a junior mortgage.

“Strip” a second or third mortgage from your home’s title, thus greatly reducing your overall mortgage debt. If you meet the required conditions, you can stop paying the second and/or third mortgage payments. You’ll likely end up paying none or only a small part of a “stripped” mortgage balance. As a result the total debt on your home will get closer to the home’s value. You’d be able to create future equity faster as the home’s value increases in the future.

 

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