One of the major reasons that people file the Chapter 13 “adjustment of debts” type of bankruptcy is because of the many tools it provides for saving their homes. One of the most important of those tools is the option of taking three to five years to catch up on back mortgage payments.
Compared to Chapter 7 “Straight Bankruptcy”
First, you get much more protection under Chapter 13. In a Chapter 7 case, if you were behind on your mortgage your lender could start or resume a foreclosure right after your three-to-four-month Chapter 7 case is over (and possibly even sooner).
In contrast, under Chapter 13 that protection, called the “automatic stay,” lasts and protects your home throughout the three-to-five-year procedure.
Second, under Chapter 7 if you were behind in your payments at that time and wanted to keep your home, you would have to make arrangements directly with your lender to catch up. You would be at the lender’s mercy about how much time you’d be given to get current. About a year is often the maximum amount of time. If you have fallen behind by a significant amount, coming up with the necessary money each month beyond your regular monthly mortgage payment to catch up in time is often simply impossible.
In contrast, Chapter 13 significantly lowers your monthly catch-up portion of your payment by stretching out your repayment period to as long as five years. Throughout this time you are protected from foreclosure as long as you fulfill your commitments. Your catch-up payment is based on what you can afford. And importantly, other urgent obligations—your vehicle payment and support arrearages, for example—can often come ahead of, or are paid in tandem with, the mortgage arrears.
Second or Third Mortgage
If your home is worth less than the amount of debt on your first mortgage, and you are behind on your second mortgage, you would likely NEVER have to catch up on that second mortgage. In fact, there’s a good chance that you could stop paying that second mortgage altogether as soon as you filed your Chapter 13 case. The second (or third) mortgage would be “stripped” off the title to your home. And that mortgage debt would then be discharged (legally written off) at the end of your successful case
If you’ve fallen seriously behind on your mortgage there’s a good change you have fallen behind on your property taxes as well. If so, that provides a separate legal basis for your mortgage lender to foreclose on your home. You are also at risk of losing your home through a foreclosure initiated by the taxing authority itself.
Chapter 13 can be the best way to deal with property tax arrears, by dealing with it similar to the mortgage arrears: you are given up to five years to catch up on the back property taxes. Again, your payments are based on your budget, and you are protected from both mortgage and tax foreclosure throughout the process.
And then at the end of your successful Chapter 13 case you would be caught up with your mortgage(s) and any back property taxes, you may have saved tens of thousands of dollars by “stripping” a second or third mortgage, and you would be current on your home and able to take advantage of its potential ongoing and future increase in equity.
If this sounds attractive to you, and you live or operate a business in New Jersey, the attorneys at the Law Office of Andrew B. Finberg can help you determine what Chapter 13 can do for you and your unpaid mortgage debt(s). Come in to see us for a free, no-obligation consultation. Please call (856) 988-9055 or use this form to contact your New Jersey bankruptcy attorneys at the Law Office of Andrew B. Finberg, LLC. Thank you for the opportunity to serve you.