What can happen to your house in a chapter 13
A chapter 13 trustee will never sell a debtor’s house no matter the value. Also, a chapter 13 was created to permit a debtor to save their house from foreclosure in the event of mortgage arrears.
Immediately upon the filing of a chapter 13 case, the mortgage foreclosure action ceases. If the debtor is behind with their mortgage payments, typically, she must cure the arrears over a period of 36 to 60 months, through a monthly bankruptcy plan. In addition to making the regular monthly mortgage payments directly to the mortgage company, the debtor must pay the pre filing arrears to the trustee. If the debtor has insufficient income to make the trustee payments and the regular monthly mortgage payments, the debtor will be unable to save the house.
The New Jersey bankruptcy courts provide a second option for saving their house from foreclosure in the event of mortgage arrears. The court will allow the debtor to participate in the loss mitigation process. Basically, this is a loan modification process, which is guided by way of the court system. The court does not possess the power to require the mortgage company to enter into a loan modification. The court only assists with the loan modification process and the facilitation of the documents between the parties. The mortgage company conforms to the same criteria in accepting the loan modification, as when the debtor is not in bankruptcy. However, the court time constraints and the ease of the flow of paper work expedites the process. During this process, the debtor must pay the monthly mortgage payments, or under certain circumstances, 60% of the regular monthly mortgage payments.
A chapter 13 is very flexible and may be modified, if a debtor changes their intent as to how they wish to proceed with their house. If a debtor is current with their mortgage payments and wishes to file for bankruptcy protection due to other issues, the debtor may keep the house and continue to make the regular mortgage payments. However, if the house has substantial equity, the debtor will be required to pay more funds to the unsecured debt. Also, for any reason, the debtor may wish to surrender their house and discharge the mortgage debt. Furthermore, the debtor may wish to sell the house during the bankruptcy filing. If the debtor’s residence is sold, the debtor may keep up to $21,625.00 of the sales’ proceeds.
NJ bankruptcy lawyer Robert Manchel, can be reached at 1 (866) 503-5655 to discuss your bankruptcy questions.