A Chapter 13 Bankruptcy may be a solution for homeowners who have fallen behind on their mortgage payments, even after a foreclosure complaint has been served or a judgment of foreclosure has been entered.

The warning bells are being sounded: Sun-Sentinel “Thousands in South Florida Could Face Foreclosure With Federal Protection Coming to an End”  Miami Hearl “A Wave of Foreclosures is Coming”. 

It is probable that the readers of this article, their friends, or neighbors may be affected by the looming foreclosure crisis, but it might be possible to save your home through bankruptcy.

Loan Modification with Chapter 13 Bankruptcy

If you file a Chapter 13 bankruptcy before your home is sold, the law imposes an “automatic stay” that prevents the mortgage lender from filing threatened foreclosure, or after the foreclosure is filed, from prosecuting the foreclosure case. You will have time to submit a repayment plan for the arrearage (past due payments) over a 3-5 year period and save your home.

How it Works 

Let’s assume that you are $30,000 behind on a mortgage which requires you to pay $2000/month and the lender threatens to file or has filed a foreclosure action. You can file a Chapter 13 bankruptcy which puts the foreclosure on hold under the automatic stay provision of the bankruptcy law. You will prepare and submit a reorganization plan providing that you will pay the $30,000 arrearage over a period of 5 years (approximately $500/month). Once the plan is approved by the court, you will begin making your usual mortgage payment of $2000/month PLUS an additional $500 towards the arrearage, for a total of $2500/month and the foreclosure case is over.

You will have to show that you have the ability to make this payment based on your projected income for the court to “confirm” (approve) the reorganization plan. Once the plan is approved, the foreclosure will end and you keep your home.

Chapter 13 and Loan Modification 

Additionally, you can apply for a traditional loan modification as part of the Chapter 13 case with oversight by the Bankruptcy court. The bankruptcy trustee who administers the Chapter 13 case will make sure the process is handled properly by the lender. This avoids the delays that are typical in the traditional modification process. If, for example, the balance owing on your mortgage is $300,000 payable over a remaining period of 15 years, you can request that the balance be re-amortized and paid over a period of 25 years thereby reducing your monthly payment and making it more affordable.

Consult with an experienced bankruptcy attorney who will help you with the filing of the Chapter 13 bankruptcy and will create a plan tailored to your financial circumstances to save your home.

How To Create a Plan to Protect Your Home

 Plan….Do a sample with 30k outstanding

  • If you stay current on your mortgage payments and make up the arrears through your Chapter 13 plan, the lender cannot foreclose and you will be able to keep your home.
  • If you received a foreclosure notice from your bank, you might still be able to save your home by filing for Chapter 13 bankruptcy—as long as you can meet the requirements for a confirmable repayment plan. Chapter 13 can stop foreclosure and allow you time to cure your mortgage default.

The trustee will look at the total amount your plan provides over the life of the plan and compare it to your projected income on schedules I and J.  Does it look like you can pay your current living expenses and the amount required by the plan?  If you propose to increase plan payments in future months, is there reason to think you will have the money to do that?

These laws exist precisely to help people, families and small businesses get back on their feet. To learn more about Chapter 11 and how it might help you and your family, click here. 

These have been, and for may continue to be, challenging times. Call our experienced bankruptcy attorneys at 305-653-5555 for a free case evaluation. Why HLA? Perhaps our clients say it best here.