Chapter 13 and Mortgages
Filing a Chapter 13 bankruptcy stops foreclosure actions. If you are behind in your mortgage payments or under the stress of the threat of foreclosure, you may file a Chapter 13 bankruptcy to stop the mortgage creditor from foreclosure or harassing calls and save your home. Once you get behind on your mortgage, it feels like you can never catch it up. Your payments do not seem to lower your arrearage because the mortgage company applies your payments to interest, escrow shortages or suspense accounts. A Chapter 13 bankruptcy or Wage Earner freezes your arrearage (what you are behind) and allows the mortgage to be paid through the chapter 13 plan. The Chapter 13 plan pays the ongoing mortgage and an amount per month to pay off the “frozen” arrearage. Once you get your discharge, the mortgage company is required to re-calibrate your mortgage. Re-calibrating the mortgage means that the fees, interest, late charges, etc…that occurred in the administration of the Chapter 13 case are removed or “discharged” and the mortgage is now current and back on track with the original mortgage contract or amortization schedule. Generally, Chapter 13 cases are three to five years in duration.
Stripping Off Junior Mortgages and Mortgage Modification via Bankruptcy
Chapter 13 cases can be very beneficial in cases where there are second or third mortgages, or home equity loans (HELOC). In some cases, a Chapter 13 plan can pay as little as 10 cents on the dollars to your total mortgage balance and discharge the remaining 90% of your mortgage balance. Additionally, in some cases, a Chapter 13 plan can be used to modify your mortgage to lower your monthly payments to make your home more affordable.
There are some cases where the mortgage is current, but you are becoming less and less able to maintain the mortgage because of all the other debts that you owe. For instance, your mortgage is current, but your car note, furniture note, credit cards, payday loans, etc… are getting behind. In these cases, a Chapter 13 case can be set up to reduce what is being paid out monthly to your non mortgage, so that you are able to now afford to keep the mortgage current. By keeping the mortgage current outside the Chapter 13 plan and paying all your other creditors inside the Chapter 13 plan, you can reduce the fees paid to the Chapter 13 Trustee, thus making your mortgage more affordable.