March 29, 2017
Chapter 13 bankruptcy is different than a chapter 7, and are often utilized to address mortgage situations such as foreclosure. In certain circumstances, it can also be used to strip a second mortgage lien.
Stop Foreclosure Using Chapter 13 -- If an individual is behind on their mortgage, or a foreclosure sale has been scheduled, chapter 13 bankruptcy can be used to stop the sale and to pay back the mortgage arrears over a set period of time. During the chapter 13, a debtor continues to pay his regular monthly mortgage payment on the first mortgage. If the debtor was behind on the mortgage at the time the petition was filed, a portion of the chapter 13 plan payment goes towards catching up the mortgage arrears in order to catch up your mortgage over a 3-5 year period. The key is that the chapter 13 plan payment must be high enough to pay off the full arrearage, and all other items that must get paid through the plan (car loans, tax debts, attorney fees, etc.).
Stopping foreclosure is one feature of a Chapter 13, but there can be other advantages as well. For example, if your home is worth less than what you owe on the first mortgage, the bankruptcy code allows you to “strip the lien” for the second mortgage. In other words, it allows you to treat the second mortgage like a normal unsecured debt (like a credit card or medical bill) and that the debt related to the second mortgage is discharged at the completion of the case. This means that if you successfully complete a chapter 13 plan with a lien strip, you will be able to eliminate the second mortgage debt from you house. While this will not be possible in every circumstance, it offers a substantial benefit if you do believe your home is worth less than you owe on the first mortgage. While a significant advantage, it is important to understand that you must complete the plan in order to receive the benefit of stripping the second lien from your home.
If you would like to discuss your options with a Grand Rapids bankruptcy attorney, call us today at 616-364-2100. If you would like to learn more about this or other bankruptcy related questions, pay us a visit at www.kalawgr.com. We look forward to hearing from you.