If your home has a sale date in a foreclosure proceeding, know that not all is lost. In today's blog we are going to be explaining how filing a Chapter 13 bankruptcy can save your home from foreclosure.
Although you may think of bankruptcy as a way of simply getting rid of debts, the different chapters of bankruptcy law afford you different ways of reorganizing or coming up to date with past due bills such as a mortgage loan or account on your home. If you find yourself in a situation where you have fallen behind on your mortgage payments, then Chapter 13 bankruptcy will give you the opportunity to resolve that past due balance while putting a stop to any collection or foreclosure proceedings.
Chapter 13 bankruptcy can help you to resolve your past due mortgage balance by allowing you to pay or “cure” the past due amount while you pay or “maintain” the regular monthly mortgage payments during the bankruptcy case. The delinquent mortgage balance can be paid off in monthly installments for up to 60 months. Once all the past due payments are made, the mortgage will be deemed current by the bankruptcy court. Under bankruptcy law, you have the right to cure the delinquent balance on your mortgage debts and the banks are required to accept this type of payment arrangement.
Chapter 13 bankruptcy can also resolve mortgage-related debt by reducing or eliminating second mortgages or junior/subordinate liens. If you are having problems with a second mortgage or other junior lien and your home has little or no value after deducting what is owed on the first mortgage, then you may be able to reduce or eliminate the other liens through a chapter 13 bankruptcy process that is affectionately referred to by bankruptcy attorneys as a cram down or a lien strip. A cram down essentially allows you to reduce the amount that is owed on a second mortgage or lien. A lien strip allows you to completely remove the second mortgage or lien.
If you are unable to take advantage of the two methods previously mentioned, then you may be able to use the bankruptcy court’s mortgage modification programs. Many bankruptcy courts have instituted special programs and procedures that allow you to request a modification of your mortgage loan. These programs are compulsory for many lenders and will require the lender to participate, in good faith, in mediation and to review, in good faith, your request for a modification of the mortgage loan. Overall, you stand a better chance of having your mortgage loan modified in a court-sponsored mortgage modification program because it is supervised by the bankruptcy court and the lenders will be held accountable if they do not act in good faith.
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