Using Chapter 13 to Obtain Home Mortgage Relief

Falling significantly behind on your mortgage can be a harrowing ordeal, exposing you not only to penalties but also to threat of foreclosure. If you’re facing this situation, filing for bankruptcy under Chapter 13 can be an effective remedy. It affords you the opportunity to pause any collection actions and work through a repayment plan that settles part of your debts and discharges the remainder. A major benefit of Chapter 13 it that it usually allows you to keep your home.

A Chapter 13 bankruptcy will not eliminate your mortgage debt but it will afford you time to repay it. The filing of a Chapter 13 petition causes an automatic stay to go into effect, which puts a stop to all debt collection processes — including foreclosure if that has begun. You then enter into a court-approved plan requiring partial repayment of unsecured debts, including any mortgage arrears. The plan can last three or five years, during which time the automatic stay remains in effect. As long as you continue to make the payments outlined in the plan, the mortgage lender and other creditors are prohibited from taking collection actions.

However, the repayment plan does not relieve you of making your regular ongoing mortgage payments. If you miss one or more payments, the lender can proceed with collection efforts, but they need to do so through the bankruptcy court. The lender must file a Motion for Relief from the Automatic Stay. Once a motion is filed, you may face a hearing and a court order declaring a default. Sometimes lenders send warning letters after the first or second missed payment rather than making a motion. This allows you time to rectify the problem without court intervention. For example, it may be possible to amend the repayment plan to include the missed payments, as long as the lender agrees.

If it is clear that making regular payments will be too difficult, you can try to obtain a mortgage modification from the lender. This can result in a decreased interest rate and/or an extension of the loan term. The advantage of seeking a modification during Chapter 13 is that the lender knows it is in their best interest to negotiate a new loan rather than having to resort to foreclosure, which can be expensive and may not satisfy the full amount due.

To get the most out of Chapter 13 mortgage relief, you should keep up communications with your bankruptcy attorney throughout the process. If you miss a payment, let him or her know as soon as possible. Your attorney can take steps to negotiate with the lender and the bankruptcy trustee to work out solutions that avoid a mortgage default and possible foreclosure.

The Law Office of Weiss, Schmidgall and Hires, PC in Merrillville helps Indiana residents use Chapter 13 bankruptcy to keep from losing their homes. Contact us online or call us at 219-293-8988 for a free initial consultation.