Getting Caught Up With Your Mortgage in Chapter 13 Bankruptcy
If you are in foreclosure, there are some forms of bankruptcy that can help you more than others. One type of bankruptcy that can help you is Chapter 13 bankruptcy. This can be good to know—a large percentage of people who file for bankruptcy do so because they are behind on mortgage payments, or because they want to modify their loan.
Modifying Loans in Chapter 13
As a general rule, the law does not allow a bankruptcy court to modify a home loan. This is called the anti-modification rule. However, Chapter 13 bankruptcy does provide for an exception to this rule, if the homeowner can both pay off the previously missed payments through the Chapter 13 bankruptcy’s 3 to 5 year payment plan, while also paying the normal, continuing mortgage payments as they come due. This is often called “Cure and Maintain.”
But this does require that you make enough money to actually pay off both the past due amount and the mortgage as it comes due. Whether or not you do depends on:
- Your income
- How far in default you are, and thus, how much you are behind on the mortgage (the arrears)
- What your other debts are—specifically, whether you have other debt that will have to be paid back in the plan, and of so, how much
- Whether you can make the payment, considering your other necessary monthly expenses
The good news is that it is possible to get a Chapter 13 plan where you don’t pay any of your unsecured creditors—creditors like credit cards or medical bills. In other words, if you can afford to pay off the back owed mortgage payments, and your continuing, ongoing mortgage payments, but you cannot also pay off any credit card or medical debt or other unsecured debt, you can still get your plan approved in the Chapter 13 bankruptcy.
Amount of Payments
Because a standard bankruptcy plan can extend 5 years, or 60 months, even a seemingly large arrearages payment can be made reasonable. For example, if you were $15,000 behind on your loan, that would only be $250 on top of your normal mortgage payment.
Added Fees and Increased Interest
There is some dispute among bankruptcy courts whether things like attorney’s fees, or penalties, which are often included in mortgage notes and charged when the borrower goes into default, can also be included in the amount owed. This can increase the Chapter 13 payment to unmanageable levels.
Fortunately, many courts have said no, the lender cannot include those fees. Additionally, some courts have said that an interest rate that was increased due to the default, must be set back to the original interest rate once a Chapter 13 plan is entered into. If there is ambiguity, a waiver of the default can ensure that additional interest, fees and penalties are not added on.
Are you facing foreclosure, repossession, eviction or other financial problems? Bankruptcy may be able to help. Call the West Palm Beach bankruptcy lawyers at Kelley, Fulton & Kaplan at 561-264-6850 with your questions.