SAVING A HOUSE IN A CHAPTER 13 CASE
CURING MORTGAGE ARREARS
A person may save their house from foreclosure action in a chapter 13 bankruptcy case. The first option is to save a house by curing the mortgage arrears. This requires the debtor to pay the total amount of the mortgage arrears, at the time of the filing, through monthly bankruptcy trustee payments. The amount that must be paid to the mortgage company, through the plan, each month, is the total mortgage arrears divided by the number of months in their bankruptcy plan. In addition to making trustee payments, the debtor must make their regular monthly mortgage payments, directly to the mortgage company, on a timely basis. A person may save their house, if he is able to make such monthly trustee and mortgage payments.
LOAN MODIFICATION PROCESS
The second option to saving a house in a chapter 13 case is to pursue a mortgage loan modification, within the bankruptcy. Typically, the bankruptcy court allows a debtor approximately six months to pursue the loan modification application process, through the court’s Loss Mitigation Program. During this time, the foreclosure action and sheriff’s sale is stayed. Pending the loan modification process, the debtor must make monthly mortgage payments, directly to the mortgage company. Additionally, the debtor must make monthly trustee payments. The amount of the trustee payment varies based on numerous factors, that are explained, in detail, in other portions of this website.
In most circumstances, the monthly trustee payment need not be sufficient to pay the total amount of the mortgage arrears through the life of the bankruptcy plan. However, if the mortgage arrears are enormous, the mortgage company may require the debtor to pay all arrears, through monthly trustee payments, over the life of the bankruptcy plan, in addition to paying regular monthly mortgage payments. Generally, in this scenario, it is unlikely that the debtor will be able to make such trustee payments. However, there may be circumstances that allow the debtor to pursue a loan modification, in such a situation, with affordable monthly trustee payments.
The loan modification process is typically facilitated through a website portal, which is used by the mortgage company and the debtor. This process eliminates much of the communication issues that are usually related to the loan modification application process. The submitted loan modification documents are uploaded and held on the website’s server. Also, all communication between the mortgage company and debtor is saved on the website server for access.
If the loan modification is approved, the debtor must file a modified chapter 13 plan and amended certain schedules to reflect the subsequent disposable income after the new mortgage payment is reflected on the expense sheet. Such modifications must also be filed, in the event that the debtor is denied a loan modification.
LOAN MODIFICATION AND CURE MORTGAGE ARREARS
A debtor may wish to pursue a loan modification and cure the arrears at the same time. This consists of combining the above referenced options concurrently. As a result, if the loan modification is denied, the person may save his house by continuing to make the monthly trustee payments that will cure the arrears. If a debtor pursues both options, the plan and schedule modification must still be filed with the court upon the denial or approval of the loan modification.
GENERAL CHAPTER 13 INFORMATION THAT APPLIES TO ALL CHAPTER 13 CASES
The bankruptcy code requires every chapter 13 debtor to make monthly payments to a trustee for a period of 36 to 60 months. The amount of the payments depends on the debtors’ household income, expenses, type of debt and property values. A person cannot pick and chose which debt they wish to pay in a chapter 13. But rather, the bankruptcy code, coupled with the debtors’ intentions, dictate which creditors must be paid, through the bankruptcy plan. Certain types of debt, such as priority debt, must be paid through the bankruptcy plan. There are situations in which certain types of secured and/or unsecured debt may or may not be paid, through trustee payments.
This means that even though someone is filing a chapter 13 for the sole purpose of saving their house, he may be required to pay other debt, through the trustee payments, in addition to their mortgage arrears. If the debtor is unable to pay the necessary mortgage arrears through the bankruptcy plan, because he is also required to pay other types of debt, the debtor may not continue with the bankruptcy case. Such a plan is called unfeasible. Under this scenario, if the attorney is unable to resolve the feasibility issue, the case will be dismissed.
Contact Manchel New Jersey Bankruptcy Law at 866 503 5644 to discuss your NJ. bankruptcy law questions.