If you are behind in your mortgage payments, applying for a loan modification with your lender may give you a false sense of security. You may think that while your loan modification request is pending, the lender cannot foreclose on your home. But that’s not true.
That’s because mortgage lenders typically process modification applications in a different department than the one that processes foreclosures. This is a time the old adage, “One hand doesn’t know what the other is doing” applies, and you may receive a foreclosure notice even while your modification request is being considered.
Filing for a Chapter 13 bankruptcy may be the solution for you. In many situations, this will stop the foreclosure process and provide a way for you to keep your home. Of course, you should always speak to an attorney to learn about your specific circumstances.
How Chapter 13 may allow you to keep your home from foreclosure
When you file a petition for Chapter 13 bankruptcy with a Federal Court, the court will issue an automatic stay on all collection procedures by all creditors. Although creditors may petition the court to lift the stay, this provides you time to have the court consider your situation.
You will also have to submit a Chapter 13 proposed plan for how you plan to repay the missed mortgage payments, normally over a period of three to five years. In addition to making your missed mortgage payments through the plan, the court will require you to continue making your ongoing mortgage payments and certain other debts, such as vehicle payments or tax debt. Depending on your circumstances and income, you may be required to pay back a portion of your unsecured debts, such as credit card debt and medical bills.
When multiple mortgages exceed the value of your home
In addition to helping you make up missed payments, Chapter 13 bankruptcy can be beneficial in situations where you have multiple mortgages and your first mortgage debt is greater than the value of your home.
In this case a bankruptcy court can help you strip away those additional mortgages that are in excess of the value of your home. The debts would then be classified “unsecured debts” meaning these creditors will only be entitled to repayment along with your other unsecured creditors.
When your plan is approved
If the bankruptcy court approves your Chapter 13 plan, your creditors are only entitled to the payments set out in the plan. After you complete repayments of your plan, you will receive a discharge of any pre-petition unsecured debts not paid through your plan. You would then continue making your ongoing mortgage payments to the lender.
How to decide if Chapter 13 is right for you
Filing for bankruptcy protection under Chapter 13 is not a one size fits all solution. If you think bankruptcy can help your financial situation, we recommend you contact an attorney that routinely works in Federal bankruptcy courts.
The bankruptcy lawyers at Krigel & Krigel are also willing to answer your questions about how a court can help you. If you have questions, you can learn more about the bankruptcy practice at here.
*This article is very general in nature and does not constitute legal advice. Readers with legal questions should consult with an attorney prior to making any legal decisions.
In a legal situation that was daunting, confusing, and thoroughly stressful, the team at Krigel & Krigel was indispensable. The attorneys were knowledgeable, prompt, patient, and communicative. Always taking the time to walk me through the processes & what to expect in the next steps. I couldn’t recommend a better group of professionals.