April 17, 2014 By:
If you are behind on your mortgage, and definitely want to keep your home, then the simple guideline is this: file a Chapter 7 “straight bankruptcy” case if that allows you to catch up on your arrears as fast as you need to, otherwise file a Chapter 13 “adjustment of debts” to give you more time.
Many considerations can come into play in deciding whether a Chapter 7 or 13 is better for you overall. Even if we focus only on considerations related to saving your house, the decision still turns on your unique circumstances.
For example, following up on the “overly simple answer” stated above, a vague rule of thumb is that mortgage holders will tend to allow Chapter 7 debtors who are behind on their mortgage about a year to catch up. The mortgage holders will generally negotiate a “forbearance agreement” with large enough monthly catch-up payments (beyond the regular monthly mortgage payment amount) to bring the account current in a year or so.
But some specific mortgage holders may have a policy of allowing a longer or shorter period, and some may lengthen or shorten the length based on the particular facts.
The situation can be complicated by the reality that a Chapter 7 filing may make you eligible for a mortgage modification, but you may well not know until after you’ve filed the bankruptcy case and applied for the modification.
Another twist is that Chapter 13 allows for the potential “stripping” of a second mortgage, which Chapter 7 does not. If so, then even if you might have been able to cure the mortgage arrearage fast enough to pull off a Chapter 7 case, the tens of thousands of dollars saved through the “stripping” would very likely make Chapter 13 the better option.
So would—in your unique situation—a Chapter 7 buy you enough time, or would you instead need the much stronger medicine of Chapter 13?
Chapter 13 deservedly is known as being the home-saving bankruptcy option. But here are some examples where Chapter 7 may be enough to save your home:
Admittedly, these are relatively rare situations. Much more common is if your income went down through unemployment or a lower paying job, so that keeping up with the home mortgage payments became impossible. And then you regained that income, or maybe not all of it, and now owe a huge amount of missed mortgage payments, late charges and other fees. It does not take long for that arrearage amount to become so large that there’s no way that you could catch up on it within a year or so.
So Chapter 13 can give you as much as five years to catch up.
It can also buy you much more time to sell your home, until you are in a better time of year for home sales, have reached a point in your family’s life when moving makes more sense, or maybe even want to wait a couple of years for the home’s value to rise.
Chapter 13 can also be much better at dealing with other house-related debts, such as property taxes, second mortgages, and income tax, support or homeowners’ association liens.
There is much that goes into the decision whether to file a Chapter 7 or Chapter 13 case. This blog should convince you that, while both have advantages, you really need an experienced bankruptcy attorney to help you make the right choice for your unique circumstances.
If you live in Texas anywhere in the Dallas-Fort Worth Metroplex, I can be that experienced attorney. My name is Carrie Weir, and I’m a Texas bankruptcy attorney serving the Metroplex, particularly the areas around Rockwall, Heath, Greenville, Lavon, Wylie, Mesquite, or Rowlett. Please contact me for a free and confidential consultation about your home and how best to deal with all your creditors. Please call 972-772-3083 or use the contact form here . Thank you.