Part 3 in a series of how to save your house
When a person who is behind on their mortgage payments calls me, I go through a hierarchy of questions: A. Do you want to save your house? B. Can you afford your mortgage payments? C. Have you tried a loan modification? D. Do you have a sheriff’s sale coming up, or are you in “pre-foreclosure” (i.e. haven’t heard from a local law firm yet). Typical answers are A. “Yes, I want to save my house” (although sometimes people realize that’s not particularly feasible especially if the house is worth substantially less than the first mortgage balance and/or they are out of work); B. “Yes I can afford the payments now, but I got behind because I was temporarily out of work; C. “Yes I’ve tried a loan modification, but I was denied” (or more typically, “yes, but they haven’t gotten back to me” which often means the homeowner didn’t try hard enough; in which case we suggest following these tips).
If the homeowner has received a definitive answer that they cannot get a loan modification, then chapter 13 is usually the next option to save the house. If they haven’t gotten a definitive answer, and they are facing foreclosure, then we often will apply for an extension of their sheriff’s sale, to buy some time to get a loan modification without the pressure of a pending sheriff’s sale, and then have chapter 13 as a final backup option to save the house.
A chapter 13 bankruptcy filing to save a house must be done prior to the sheriff’s sale, and will stop it in its tracks. The homeowner then puts together a plan, whereby the arrearages, i.e. the extent to which the debtor had gotten behind, get paid back within a “reasonable time,” i.e. up to 3-5 years. And sometimes the homeowner can even still get a loan modification once they are in the chapter 13.
In order to qualify for chapter 13, the debtor should be able to show that they can not only afford the mortgage payment, but can also afford the chapter 13 plan payment to get caught up.
A chapter 13 bankruptcy can also help pay off taxes, restructure car loans, discharge unsecured debts like credit cards, as well as “stripping” second mortgages when the house is worth less than the amount owed on the first mortgage.