Consumers who are in foreclosure or in risk of losing their home can file for relief under Chapter 13 of the United States Bankruptcy Code. In order to qualify for a Chapter 13 filing, the consumer must have a regular and steady source of income. Under a Chapter 13, a consumer is allowed to pay off the "arrearage" (late unpaid payments) over the length of a repayment plan (usually between (3) three or (5) five years). This repayment plan is known as a Chapter 13 Plan.
This option is only available to those consumers who can not only afford to make their payments under the Chapter 13 Plan, but also can pay their current mortgage payment at the same time you're paying off the arrearage. Assuming you make all the required payments up to the end of the repayment plan, you'll avoid foreclosure and keep your home.
BENEFITS OF A CHAPTER 13
Loss Mitigation Program
A benefit of filing for Chapter 13 relief is that a consumer can also apply for a modification under the Loss Mitigation Program. Please note that this program is only available for those consumers who file for Chapter 13 relief in either the Southern District of New York or Eastern District of New York -Kings County Division. The Loss Mitigation Program is designed to help facilitate a consensual resolution for consumers and lenders whenever a consumer's residential property is at risk of foreclosure. Once a modification is approved, the consumer will be current with their mortgage and will no longer be required to pay off the arrearage under the Chapter 13 Plan.
Getting rid of those 2nd and 3rd Mortgages
There is a further significant benefit to those consumers who have a second or third mortgage against property that is totally underwater. In these situations where the house is worth less than the balance owed on the first mortgage, the consumer can bring a "cram-down" proceeding and effectively "strip-off" and totally eliminate the second and/or third mortgage. The 2nd and 3rd mortgages are treated as unsecured and will be paid through the plan at the pro rata share. These mortgages however have the to retain its lien until the Debtor's receive a Chapter 13 discharge.
FILING FOR RELIEF UNDER CHAPTER 7 OF THE UNITED STATES BANKRUPTCY CODE
Surrendering Real Estate and Eliminating Mortgage Debt in Bankruptcy
By filing relief under Chapter 7 of the United States Bankruptcy Code, consumers can discharge (or eliminate) their debt including any liabilities on a mortgage. A Chapter 7 bankruptcy can provide immediate relief to a wide range of financial problems. It is an effective means to eliminate large amounts of unsecured and secured debts. Once you file a Chapter 7 bankruptcy, all creditors are immediately prohibited from engaging in any collection activity against you without first obtaining court permission from a Bankruptcy Judge.
When I meet with a client who has significant mortgage arrears, and whose mortgage balances greatly exceed the value of their home, I discuss the concept that it may no longer be viable for them to save their home and should consider filing Chapter 7 bankruptcy as a way out of bad, highly leveraged debt.
Bankruptcy Eliminates Recourse
By filing a bankruptcy and possibly engaging in foreclosure defense, the consumer will have to eventually walk away from the home, but they will probably be able to stay in it for several years without making any payments - all without financial recourse from the mortgage company.
There is also a strategy for timing the filing of the bankruptcy. Although a bankruptcy filing can be done at any time, the filing of a case at the right time will give the homeowner a few extra months to remain in the house especially since the automatic stay will cease the efforts by the lender to foreclose and force them to seek court permission to lift that protection.
Indeed there are solutions even with a bad mortgage debt. So if the dream of home ownership has become a nightmare, then remember that there are options including bankruptcy.
For a consultation please contact:
The Law Office Of Julio E. Portilla P.C.
(212) 365-02-92
http://www.julioportillalaw.com/
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