Mortgage arrears can be dealt with in a Chapter 13 bankruptcy
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If you are plagued with debt, you may be considering bankruptcy but worry that filing will mean you will lose your car or home. If you are behind on your mortgage payments, you could be doubly worried that your house will be taken away. But in fact, a well-timed Chapter 13 can be your best hope to keep your family home while getting your debts under control.
The Basics of a Chapter 13
Chapter 13 is known as debt reorganization and establishes a plan that will allow you to get back on track by paying your debts over a three to five year payment plan. This will typically allow you to keep your assets – including your home and your car – while reducing (or eliminating) most of your unsecured debts. Notable exceptions are student loans (unless you file an adversary proceeding to request relief), child support, alimony and unfiled or very recently filed taxes. This differs from a Chapter 7 where a number of late payments usually means you’ll lose the associated asset.
Second Mortgages in Chapter 13
If your financial problems relate to a second mortgage (or even a third), the great news is that you can use bankruptcy to wipe these out and make your monthly obligations more manageable. This is also called “lien stripping” and can be used to discharge second mortgage balances if – and this is important – the value of your home is less than the primary mortgage balance. With the recent real estate crashes, many people are upside down on their mortgages because their property value plummeted, they refinanced and took cash out, because they didn’t invest a significant down-payment or a myriad of other reasons.
Chapter 13 can help stop a home foreclosure for good.
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Avoiding Foreclosure Using Chapter 13
If you are facing foreclosure, a Chapter 13 will temporarily stop this from happening. This can allow you time to make payment arrangements with your lender to catch up your payment backlog. If there is a glut of foreclosed properties in your area or your home will be difficult for the bank to sell, they may be much more willing to be reasonable with you and make your mortgage payments more affordable. If they’re not willing to alter your payments, at least you can spread your past due balance out over the length of your repayment period which is three to five years.
Postponing Foreclosure Using Chapter 13
In some instances, losing your home may be inevitable. Some clients that bought a pricier home when they had two incomes come to us because they are down to one income due to unemployment, disability, medical crisis or divorce. As a result, they simply can’t afford the payments and likely won’t ever be able to. Filing Chapter 13 can shut down the foreclosure while you explore other options such as a short sale or surrender. Some of our clients simply want the extra time to build up funds for a down payment on rental property or to make other living arrangements.
If you are behind on your mortgage payments and are looking for solutions, contact the law offices of John T Orcutt for advice on how a North Carolina Chapter 13 bankruptcy may help you!