Can a bankruptcy help me save my home if I’m behind in my mortgage payments?

In my last bankruptcy blog, I addressed the fact that in most cases, you can keep your home when you file for bankruptcy under both Chapter 7 and Chapter 13.  In that blog, I described situations where the homeowners were either current in their mortgage payments, or at most, only a month or two behind.

Now let’s examine the situation where you are several months behind in your monthly payments to the mortgage holder (generally a bank).  This is the case where, without  a bankruptcy,  it would take you many months of double payments to get the mortgage caught up, and your income is not high enough to make double payments with enough left over for food and heat.  Many times, the bank has started foreclosure proceedings against you to take the house back.  Is there anything you can do at that point to keep your home?

The answer is yes, there is something you can do to keep your home, even in the case where your failure to make monthly payments means there’s a sizeable arrearage.  This is done through a Chapter 13 bankruptcy.  First of all, filing a bankruptcy stops a foreclosure action right in its tracks.  That’s called the “automatic stay”.  The bank can’t go any farther with the foreclosure without getting the express permission of the Bankruptcy Court.  Under Chapter 13, you make monthly payments under a plan, which can run anywhere from 36 to 60 months.  As you probably know, a Chapter 13 plan will provide that you pay your unsecured creditors (credit cards, personal loans, medical bills, etc.) some percentage of the balance of what you owe them on the date of filing.  Since mortgages are secured debts (the house is the security for the mortgage being paid), you must pay the total amount due on the mortgage rather than just a percentage.  However, you can pay the arrearage off over the length of the plan.  And so long as these payments are made, the bank cannot go any farther with the foreclosure.

Since this is kind of complicated to put into words, let’s use an example.  (For the sake of keeping it simple, let’s say you do not have a car loan.  If you do, you’ll have to add that monthly payment in as well.)   Say your regular monthly mortgage payment is $1500, and you are currently $12,000 behind in those payments.  You file under Chapter 13 requesting a 60-month plan, specifically for the purpose of making the payments on the arrearage as comfortable for you as possible.  The plan would basically provide for you to pay: 1) the $1500 monthly mortgage payment, 2) 1/60th of the $12,000 arrearage [$200 per month], and 3) an amount to pay the unsecured creditors at the plan percentage over 60 months.  Therefore, you would pay the bank $1700 each month during the bankruptcy towards the mortgage, rather than double payments or a lump sum to make up the $12,000 arrearage, and at the end of the plan, your mortgage would be current.

For this plan to work, obviously, you must be able to devote $1700 to your mortgage expenses alone.  Your monthly budget would have to allow you to do this.  And, again, if you have a car payment, that would have to be paid for you to keep your vehicle, as well as a percentage for the Trustee’s fees and attorney’s fees.  The percentage to your unsecured creditors is generally calculated with these set expenses in mind, again on the basis of the money you have available once your reasonable living expenses are deducted from your monthly income.

I’ve tried to make this example fairly simple so as to explain the idea behind it.  Your situation may be more complicated.  If this is your concern about filing a bankruptcy, I’d be happy to sit down with you and we can explore your situation in more detail.

About Barbara Horwitz

Barbara Horwitz is an experienced bankruptcy attorney helping people get past financial difficulties. She believes in creating a relationship with clients and is dedicated to making the bankruptcy process as easy and stress-free for clients. Barbara Horwitz's Google+ Profile

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