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Archive for the ‘mortgage modification’ tag

Pandemic Mortgage Forbearance

May 25th, 2020 at 7:00 am

Mortgage delinquencies skyrocketed in April. One big reason: the pandemic CARES Act provided for extraordinary mortgage payment forbearance.  

 

Epic Increase in Mortgage Delinquencies

The number of home mortgages that became delinquent in April was largest one-month increase in U.S. history. 1.6 million mortgages current in March were not paid in April, according to Black Knight, a mortgage data provider.

For some perspective, the percentage of all mortgages that became delinquent nearly doubled in that one month—from 3.39% to 6.45%. This percentage increase was also the largest in history. It broke the last record monthly percentage increase set in 2008, during the Great Recession. The April increase was nearly 3 times the monthly increase back then. This is in spite of the reality that the Great Recession was an epic mortgage crisis.

The size of April’s increase reflects the unprecedentedly sudden economic effects of the pandemic—the self-induced shut-down. 

It was also substantially fed by the mortgage relief provided by the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act passed by Congress in late March. As of May 19, 2020 more than 4.75 million mortgages had entered into forbearance—authorized deferred payment—plans. Black Knight Press Release, May 22, 2020.

So homeowners are clearly taking advantage of mortgage forbearances. Should you, too? It’s been nearly two months since the CARES Act became law, a good time to review its mortgage benefits. Here is what it provided.

CARES Applies Only to Federal Mortgages

At the outset be aware that CARES applies only to federally- owned or -backed mortgages. About three-quarters of all mortgages are federally owned or backed by a federal agency or entity. These include U.S. Department of Housing and Urban Development (HUD), U. S. Department of Agriculture (USDA Direct  and USDA Guaranteed Federal Housing Administration (FHA) (includes reverse mortgages) ), U.S. Department of Veterans Affairs (VA), Fannie Mae (check here to see if your loan is backed by Fannie Mae) , Freddie Mac (check here to see if your loan is backed by Freddie Mac).

Also check out the U.S. Consumer Financial Protection Bureau’s How can I tell who owns my mortgage?

If You Don’t Have Federal Mortgage

Contact your mortgage servicer if you have a mortgage not owned or backed by a federal agency or entity. Financial regulators have urged all financial institutions to work with borrowers in this extraordinarily disruptive time. Interagency Statement on Loan Modifications…, April 7, 2020.  

Here’s a list of some of the pandemic-related services offered by a huge number of the nation’s banks. Many include references to mortgage payment deferrals and forbearance.

CARES’ Mortgage Relief Options

For federally owned or backed mortgages, the CARES Act provided two separate forms of relief. These included a short moratorium on foreclosures and forbearance of monthly payments.

The foreclosure moratorium was so short that it’s already expired. It was in effect for only 60 days starting from March 18 through May 17, 2020. During this period CARES prevented the starting or completion of a judicial or non-judicial foreclosure. CARES Section 4022(c)(2).

The forbearance part of the law is the focus of the rest of this blog post.

Mortgage Servicer “Shall Provide the Forbearance”

The CARES law is quite straightforward. The mortgage servicer (the entity you make mortgage payments to) “shall… provide the [requested] forbearance”:

  • to a borrower who “submit[ted] a request”
  • including an “affirm[ation] that the borrower is experiencing a financial hardship during the COVID–19 emergency”              

The servicer can’t:

  • require “any additional documentation … other than the borrower’s attestation to a financial hardship caused by the COVID–19 emergency”
  • charge any “fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract)”
  • require that the mortgage be in any particular “delinquency status” in order to provide the forbearance

CARES Section 4022 (b) and (c)(1).

Length of Forbearance

“Upon a request by a borrower for forbearance… such forbearance shall be granted for up to 180 days, and shall be extended for an additional period of up to 180 days at the request of the borrower, provided that, at the borrower’s request, either the initial or extended period of forbearance may be shortened.”

CARES Section 4022 (b)(2).

There’s a potentially important timing condition when the borrower submits the extension for an additional 180 days of forbearance. “[T]he borrower’s request for an extension [must be] made during the covered period.” CARES Section 4022 (c)(1). “Covered period” is a phrase used earlier in the Section, referring almost certainly to the officially declared national “COVID-19 Emergency.” That is, the borrower must submit the request for a 180-day extension while this emergency is still in legal effect.

After Getting Your Mortgage Forbearance

The CARES Act does not say anything about the timing for repayment of the deferred payments. That crucial issue is the topic of our next blog post.

 

Flexibility in Selling Your Home through Chapter 13

July 11th, 2016 at 7:00 am

If you are behind on your mortgage and want to sell, you may be able to delay the home sale for years and pay the arrearage out of the sale.

 

In a recent blog post we listed 10 ways Chapter 13 helps you keep your home. Here’s the third one of those ways:

3. Much Greater Flexibility in Selling Home

If you want to sell your home while in the midst of a lot of financial pressure, Chapter 7 “straight bankruptcy” does not buy you much time. It protects you and your home from your mortgage lender for at most only about three or four months. In contrast, a Chapter 13 “adjustment of debts” potentially protects you for years until you’re ready to sell.

You may need to sell your home for financial or personal reasons, but want to delay doing so.  For example, you may want to wait until a kid finishes high school or you reach an anticipated retirement date before you’re ready to move. Even if you’re behind on your mortgage, Chapter 13 can often enable you to delay selling until you’re ready.  

Here’s an example to show how this works in practice.

The Example

Assume that because of injuries from a vehicle accident you were temporarily disabled and couldn’t work.  As a result you fell behind on your home mortgage loan by $10,000—8 payments of $1,250 per month.

You are now back at work but earn only enough income to be able to afford the $1,250 monthly mortgage payment. You don’t have enough cash flow to begin to catch up on the $10,000 you’re behind. Nor do you have any savings to pay that $10,000, or anything to sell to raise that much money. Your mortgage lender is threatening to foreclose if you don’t bring the account current.

The home is worth $225,000, the mortgage balance is $175,000, and home prices in your area are currently rising steadily. The homestead exemption that applies to your home in your state is $35,000.

Your employer is planning on opening a new regional center in another state in two years. It offered you an incentive to move your job there; you decided to accept because you have family there. You want to delay selling your home until when that job move in two years.

Chapter 7 Won’t Likely Solve the Problem

If you file a Chapter 7 “straight bankruptcy” it’ll help but often not enough. You would be able to stop paying most of your debts right away. Many of those debts would be legally written off—“discharged”—in bankruptcy forever. That may buy you enough monthly cash flow so that you could pay something to your mortgage lender each month towards catching up on the $10,000 arrearage.

So if you and your bankruptcy lawyer could make arrangements with your mortgage lender to catch up as fast as the lender would require you to, then Chapter 7 may well be what you need. But at $10,000 behind, that would likely require monthly payments around $1,000. And that would be IN ADDITION TO the regular monthly $1,250 mortgage payment.

If you couldn’t catch up fast enough to satisfy your lender, then Chapter 7 wouldn’t help you enough. It wouldn’t enable you to hold off on selling your home for 2 years. It almost for sure wouldn’t let you avoid catching up on your mortgage arrearage for that long. If you couldn’t satisfy your mortgage lender fast enough, your home would be foreclosed.

Chapter 13 Buys You Time to Sell Your Home

In contrast, a Chapter 13 case could potentially protect your home for years until you’re ready to sell.

In the usual case, if you are in arrears on the mortgage your Chapter 13 payment plan would have to earmark enough in monthly payments towards that arrearage so that you brought the account current by the time the case was completed. That usually gives you 3 to 5 years to catch up.

If there is equity in your home (such as in this example), you can likely hold off making catch up payments for a while. You DO have to make the regular monthly mortgage payments as soon as your case is filed. Falling any further behind DURING the case is considered very inappropriate.  But if you have a significant equity cushion, and especially if market values are rising, you’re given more flexibility about when you have to catch up on the mortgage.

When, as in our example, you know when you want to sell your home, you and your lawyer can incorporate that into your Chapter 13 payment plan. You would likely be able to hold off on paying towards the arrearage in the meantime. Or, if you can afford it, you might want to make modest payments towards the arrearage. That way you would have more equity and get more money out of your home when you do sell two years later.

Conclusion

Chapter 13 would likely allow you to put off selling your home until the time is right for you. If the home has some equity, you may even be able to delay paying any or most of the mortgage arrearage until doing so out of the anticipated proceeds of the sale. This would allow you to focus your financial energies in the meantime on making the regular monthly mortgage payments, and on any other high-priority obligation(s).

 

Keeping Your Home through Chapter 13

May 16th, 2016 at 7:00 am

Chapter 13 gives you much more time to catch up on your unpaid mortgage payments. That can be reason enough choose this option.

 

Filing either a Chapter 7 “straight bankruptcy” case or a Chapter 13 “adjustment of debts” one stops a pending home foreclosure. And they can both prevent one from begin started. Assuming you’re behind on your mortgage and want to keep your home, whether you should file under Chapter 7 or Chapter 13 depends on how far behind you are and how much help you need in catching up.

Protection through the “Automatic Stay”

Filing either a Chapter 7 or Chapter 13 case immediately imposes the “automatic stay” on your mortgage lender, and on all your other creditors. This is the federal law which stops and prevents (“stays”) virtually all collection actions against you or your property, including a home foreclosure.

Under Chapter 7 this “automatic stay” protection only lasts a short time, usually about three months or so. And the mortgage lender can even ask the bankruptcy court to cut short that protection.

Buying Some Time with Chapter 7

As we said in our last blog post, Chapter 7 usually lets you keep your home if you are current or not too far behind on your mortgage payments.

Most people who file a Chapter 7 case gain some monthly cash flow because they no longer have to pay some of their debts. Consider the Chapter 7 option if you want to keep your home and after filing bankruptcy you would have enough cash flow to make both your regular mortgage payments plus enough extra to be able to catch up on the late payments fast enough to satisfy your particular mortgage lender(s).

How much time you’ll have depends on the particular lender. About a year is a very rough estimate, but this varies widely so discuss this with an experienced bankruptcy lawyer to get a better idea what your lender will allow in your circumstances.

Buying a Lot More Time with Chapter 13

Instead of buying just a matter of a few months, Chapter 13 can usually give you as much as five years to catch up on your back mortgage payments.

If you are in foreclosure or anticipating that you will be soon, you could easily be tens of thousands of dollars behind on your mortgage. You may also be behind on property taxes and/or homeowner association assessments. You likely need as much time as possible to catch up on these. Stretching the repayment period out as long as five years can greatly reduce what you have to pay each month to catch up. This can make keeping your home much more feasible.

Not Need Lender’s Consent

Under Chapter 7 you are largely at the mercy of your lender regarding how much time you’ll have to get current. So you have to pay the necessary amount each month to accomplish that.

Under Chapter 13 you don’t rely on the cooperation of your mortgage lender. As long as you follow the law in how you and your lawyer put together the Chapter 13 payment plan, and then comply with that plan, the lender has little choice.

It can keep your feet to the fire to make sure you comply with the plan you propose and that the court approves. If you don’t pay as the plan says, you can still lose your home. But you’re much more in the driver’s seat, following a financial plan based on what your budget says you can afford to pay.  

Creative Flexibility

Not only do you get much more time to catch up on your mortgage(s), you also often get a fair amount of flexibility in how and when that happens in relation to your other pressing debts.

For example, let’s say you are also behind on your vehicle loan or child support. Depending on the amount of equity in your home and other factors, you may be able to pay such other even more urgent creditors ahead of or at the same time as you’re catching up on the mortgage.

Sometimes you may even be able to catch up on your mortgage in part or in full through a refinancing of your home. That refinancing may even be purposely delayed a couple years to allow for more equity to build up in your home.

Chapter 13 case comes with other kinds of flexibility. Your payment plan can from the outset reflect future anticipated increases in income or available funds, such as after a child starts school and a spouse begins making an income. That can make the payment plan easier in the meantime.

When financial circumstances change midstream, your Chapter 13 plan can usually be adjusted to reflect changes in your income and expenses.

These various kinds of flexibility make more likely that you can keep your home in the long run.

The Flexibility to Safely Change Your Mind

Your financial or life circumstances could change a year or two after filing your Chapter 13 case so much that you end up deciding you don’t want to keep the house after all.

For example you may get a new job out of the area, or a child may graduate from the local high school and leave home, so that keeping the home is no longer appropriate or necessary.

Under Chapter 13 you can change your mind and sell or surrender the home then, in a more financially protected way.  You can do so by amending the terms of your Chapter 13 payment plan, by converting your case into a Chapter 7 one to discharge any remaining debts, or even by simply dismissing (closing) your case if you don’t need its benefits any longer.

 

A Fresh Start on Your Home with Chapter 13

January 22nd, 2016 at 8:00 am

Adjusting your mortgage and other home-related debts under Chapter 13 can often give your home the very best fresh start.

 

Our last two blog posts have been about two options for when you need help making mortgage payments: a mortgage modification and a forbearance agreement.

In a nutshell, a mortgage modification reduces the monthly mortgage payments through a permanent restructuring of one or more of the terms of the mortgage. A reduction in the principal amount of the mortgage debt is seldom included. So while modification can help in the short-term–if you’re fortunate enough to meet the relatively tight qualifying standards—be careful about what it costs you long-term.

With a forbearance agreement the monthly mortgage payments don’t change. The lender simply gives you a certain number of months to catch up on the unpaid mortgage payments, while at the same time you must also make your regular monthly mortgage payment.

So, mortgage modification addresses a permanent cash flow problem while a forbearance agreement addresses a shorter term cash crunch.

A Chapter 13 “adjustment of debts” can deal with either, in the right circumstances.

Chapter 13 vs. Mortgage Modification and Forbearance Agreement

From the start Chapter 13 is different from these other two options in one significant way—it’s not voluntary on the part of the mortgage lender. Instead of you trying to meet the lender’s qualification standards, you and your attorney put together a plan based on what serves your own best interests. Although you certainly have to follow some rules, you are given a lot of latitude as you do so.

For example, you do have to pay all the first mortgage arrearage before the end of the case, but you’re usually given 3 to 5 years to do so. That’s in contrast to a forbearance agreement which usually only gives you a few months, a year at the most.

And the amount you pay each month can vary depending on what other obligations may be more urgent for you. For example, if you have to catch up on a vehicle loan arrearage, or if you are behind on child support, those can usually be paid ahead of the mortgage arrearage. Or the amount paid on the mortgage arrearage can be reduced while you are paying certain other high priority debts or expenses. This kind of consideration for other debts would simply not be permitted in a forbearance agreement.

As for mortgage modification, you’re usually not required to catch up on the arrearage since that’s wrapped into the rewritten loan. With that advantage, and with a reduced monthly payment, modification can be better than Chapter 13.

Chapter 13 with Mortgage Modification

A mortgage modification can be the most effective in combination with Chapter 13, in a two respects.

First, a Chapter 13 case can help you succeed with a mortgage modification. Without collection pressure from your other creditors, you stand a better chance of getting past the modification’s trial period and getting a permanent modification. And by significantly reducing how much you pay your creditors each month, you will more likely be able to stick to the terms of the mortgage modification in the long run.

Second, a mortgage modification can help you succeed with your Chapter 13 case, in a couple ways:

  • A mortgage modification results in you paying less on your first mortgage as a result of lower monthly payments and no arrearage to catch up on.  With less to pay towards the mortgage, that leaves more to pay other high-priority debts—such as recent income taxes and child support arrearage—that must be paid in full in a Chapter 13 plan in a maximum of 5 years. This means that a plan that would have been difficult to pay off in time becomes more feasible.
  • Similarly, with less money going towards the mortgage because of a modification, a plan that would have taken up to 5 years could be shortened to 3 years. Your income during the months before filing determines whether you plan must run a minimum of 3 years or 5 years. But even if you are only required to pay for 3 years, you are allowed to stretch the plan longer to reduce the monthly payment and better fit your budget. You’ll more likely be able to finish in 3 years if your monthly mortgage obligation is less, giving you more money to pay into your Chapter 13 plan. 

 

A Fresh Start with a Forbearance Agreement

January 20th, 2016 at 8:00 am

Whether you’re about to fall behind on your mortgage or have already done so, a forbearance agreement avoids foreclosure while you catch up.


Quick Definition

A forbearance agreement gives you short-term relief to deal with a temporary period of financial hardship. Your mortgage lender agrees, either in advance or after the fact, to accept a period of reduced or suspended monthly payments in return for your agreement to return to full monthly payments and catch up on the missed payments within a certain length of time. The lender agrees to not foreclose—to “forbear” from foreclosing—as long as you make the agreed regular and catch-up payments. You are given this grace period to bring the mortgage current and then return to making just the regular monthly payments.

Compared to Mortgage Modification

Forbearance agreements are usually much easier to qualify for and quicker to negotiate with the lender. After all you are not changing most of the terms of the mortgage—almost always the regular monthly payment, the interest rate, and the length of the overall mortgage don’t change. You’re just forgiven for a period of time of being in default on the payments, and are then required to catch up relatively quickly. A forbearance agreement does not make your mortgage more affordable long-term, but rather gets you back in good graces with the same mortgage you signed up for originally.

In contrast, a mortgage modification changes the terms of the mortgage to make it more affordable long-term, by reducing the monthly payment. But besides being relatively difficult to qualify for and process, mortgage modifications usually don’t reduce the principal amount you owe but rather make it somewhat easier to pay, with a reduced interest rate or a longer term (for example, 40 years instead of 30). See our last blog post for more about mortgage modifications.

The Relatively Rare Solution

So forbearance agreements are only appropriate for that relatively rare situations  in which you only miss a few months of mortgage payments and then get to a point in which you can not only afford the regular payments again but also pay a significant amount extra each month to catch up on the missed payments within a relatively short period of time.

The amount of time to catch up varies with each mortgage lender and the circumstances of each case. Periods of 6 to 10 months are common, seldom more than a year.

Take the example of a mortgage with a monthly payment of $1,500. If the homeowner missed 5 payments because of a job loss, he or she would be $7,500 behind on the mortgage. After the lender starts a foreclosure, the homeowner finds steady employment and negotiates a forbearance agreement to catch up on that $7,500 over the next 10 months. He or she would have to make the regular $1,500 monthly payment plus $750 extra every month for 10 months. During those 10 months the foreclosure would be put on hold. At the end of that time the homeowner would be current on the mortgage and the foreclosure would be canceled.

Forbearance Agreements and Bankruptcy

For most people, coming up with the extra monthly amount—the $750 in the above example—is impossible because of other debts. So forbearance agreements are often used together with Chapter 7 “straight bankruptcy.” Paying the catch-up payment can be much more feasible if you don’t have to pay most or all of your other debts at the same time.

Forbearance agreements do not usually work with Chapter 13 “adjustment of debts” payment plans. Instead Chapter 13 is often used instead of forbearance agreements if you simply don’t have the cash flow to make the catch-up payments that your lender would require of you. Chapter 13 can usually allow you to catch up over a much longer period of time—3 to 5 years instead of a year or less with a forbearance agreement. Stretching out the catch-up payments under a Chapter 13 plan lowers that monthly amount significantly. Chapter 13 may also allow you to stop payments on a second (or third) mortgage, give you longer to catch up on any back property taxes or homeowner association dues, and deal better with income tax liens or other obligations tied to the home. We’ll address the Chapter 13 option more thoroughly in our next blog post. 

 

A Fresh Start with a Mortgage Modification

January 18th, 2016 at 2:00 am

Mortgage modification may reduce your monthly payments but not likely reduce your balance owed. So it costs less short-term, not long-term.

Quick Definition

A mortgage modification is a permanent restructuring of one or more of the terms of the mortgage intended to make it more affordable on a monthly basis.

Compared to Forbearance Agreement

A mortgage modification is intended to deal with the permanent unaffordability of the mortgage payment, while a forbearance agreement deals with a short-term unaffordability.

With a forbearance agreement the monthly mortgage payments don’t change. The lender simply gives you a limited time to catch up on missed mortgage payments, while you must make your full regular mortgage payment as well. If you simply don’t have the cash flow to do that—even after writing off most or all of your other debts in a Chapter 7 “straight bankruptcy”—than you should look closely at mortgage modification.

Compared to Chapter 13

In a Chapter 13 payment plan you are specifically NOT allowed to modify the terms of a first mortgage, but are given much more time than in a forbearance agreement to catch up any missed payments. In this respect it’s better than a forbearance agreement, but perhaps not as good as a mortgage modification that reduces the monthly payment amount.

However, if there’s a second mortgage, and if the home is worth no more than the balance of the first mortgage, Chapter 13 may be able to altogether do away with the second mortgage’s monthly payment. And you may only need to pay a small part of that second mortgage debt, or even none of it, before the remaining balance is discharged (written off). That could potentially save you tens of thousands of dollars. If so, Chapter 13 could be much better on both a monthly and long-term basis.

Furthermore, there are many other possible benefits to Chapter 13 if there are other liens on the home (such as for unpaid property taxes, income taxes, or judgments). And Chapter 13 can greatly help with other special debts even if they are not liens on the home, such as income taxes, support obligations, other marital debts, and student loans. Taken all together these may make Chapter 13 the best way to go.

Caution

Keep the following in mind:

  • The qualification standards for a mortgage modification can very rigid. Whether done through a governmental program or with the lender directly, the new modified monthly payment is usually defined as a targeted percentage of your monthly gross income, usually a particular percentage between 31 and 41 percent. That new payment must be enough to pay off the loan within some extended period of time, say 40 years. Or sometimes some of the principal is deferred until the house is sold or refinanced. But if the numbers don’t pencil out, the modification is not approved.
  • Going through a mortgage modification can be arduous. Generally, to be eligible for a loan modification, you must:
    • provide a great deal of required documentation to the lender for evaluation, including:
      • a financial statement
      • proof of income
      • most recent tax returns
      • bank statements
      • a hardship letter
      • show that you cannot make your current mortgage payment due to a financial hardship
      • complete a trial period to demonstrate you can afford the new monthly amount
  • Don’t expect a write-down of the mortgage debt. Mortgage lenders have fought tooth and nail to resist “principal reduction.” Why not forgive some of the debt to make the debt more affordable? First, as simplistic as this sounds, lenders want to avoid opening the door to reducing their balances. They simply hate to voluntarily let go of money legally owed to them. Second, lenders may believe that they are contractually bound to those who invested in the mortgage-backed securities to not write down the debts.  

Conclusion

Mortgage modification is not easy to pull off because you must fit within a narrow window of having enough income but not too much. And even if you and your home do qualify, jumping through all the hoops takes great persistence and attention to detail. Furthermore, a successful modification on the short term can still mean paying more for your home in the long run.

So find out as quickly as possible if you can realistically qualify, and be assertive in providing the required paperwork and following through. Most importantly, get advice about the various ways that Chapter 13 could help and potentially be better than a modification. Or you may find out that a mortgage modification may only work when done TOGETHER with a Chapter 13 case to reduce your other debts.   

 

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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