On April 20, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)was signed into law. The law was effective on October 17, 2005. This law modified a number of the bankruptcy code provisions.
Prior to the amendment, a person was permitted to file a subsequent chapter 7 bankruptcy case within 6 years of the filing of a prior case. The law modified the number of years from 6 to 8. Also, the law modified the ability to refile a bankruptcy case. Prior to the October effective date, the news and public information about the law concerned people that were contemplating bankruptcy. The result of this concern caused the bankruptcy filings to sky rocket, during the months prior to the effective date.
The 8 year anniversary of the effective date of the law is October 17, 2013. This means that the people that filed, immediately prior to October 17, 2005, may file a second chapter 7 bankruptcy case, after October 17, 2013.
Within the last several years numerous people have entered into loan modifications, which result in extinguishing a foreclosure action and removing their loan from default. However, due to the continued stagnant economy and high unemployment rate, a number of people have defaulted on their loan modification mortgage payments.
If a person wishes to save their house from foreclosure by filing a chapter 13 and paying their mortgage arrears through a five year chapter 13 bankruptcy plan, he must have the necessary monthly disposable funds to make the monthly trustee and mortgage payments. The higher the amount of the mortgage arrears, that must be paid through the bankruptcy plan,the larger the trustee payment. Over the prior three years, people were so far behind with their mortgage payments that they were unable to pay the substantial mortgage arrears, over the five year bankruptcy plan.
Prior to entering into the loan modification, an individual was less likely able to cure their mortgage arrears through a chapter 13 bankruptcy plan, due to the substantial arrears’ amount. In other words, the person had insufficient funds to pay all of their substantial mortgage arrears over the 5 year bankruptcy plan.
Typically, a loan modification cures the default and brings the mortgage payments current, as if the person is no longer behind with the payments. If a person defaults on the loan modification, the total amount of the mortgage arrears, includes the total amount due from the time of the loan modification through the present. The arrears does not include the amount that a person was behind prior to the loan modification. Therefore, the total amount of the arrears of a default of a loan modification is reduced to the amount due after the loan modification, only. Since the arrears’ amount is smaller after the loan modification, it is more likely that a chapter 13 debtor could pay such arrears through a chapter 13 bankruptcy.
Attorney Robert Manchel, a NJ bankruptcy lawyer, can be contacted at(866) 503-5655 to discuss your options for filing for bankruptcy protection.