The most favorable and flexible terms that you will get for curing your back mortgage and property tax payments is through Chapter 13 bankruptcy.
Catching Up Without Bankruptcy
If you fall behind in your mortgage payments and don’t have money set aside or a rich relative to help you catch up, you will have very few options for saving your home. Outside bankruptcy you are completely at the mercy of your mortgage lender. Once you are in a position to try to catch up, you should certainly contact your lender to see whether it is able to offer you a “forbearance” agreement for bringing your account current. This is an agreement that the lender will “forbear” — stop and avoid — foreclosing as long as you stick religiously to a schedule of payments, usually including the regular monthly payment plus a catch-up payment, and other conditions involving taxes and insurance.
The problem is that the catch-up payment portion may simply be impossibly large because the lender will likely insist that you catch up relatively quickly. And you will not have any choice but to go along or lose your home.
Any back property taxes that you owe would just make this worse, because falling behind on these taxes is itself a violation of your agreement with your lender. It also justifiably makes the lender very nervous because the property tax entity can foreclose the property even out from under the lender.
Catching Up through Chapter 7
The situation in some respects is not much different if you file a Chapter 7 straight bankruptcy case. This only buys you a couple months of protection from foreclosure, leaving you again largely at the mercy of your lender on the length and other terms of your forbearance agreement.
But there are some differences that may mean that Chapter 7 could provide just enough help in certain situations. First, of course writing off all or most of your other debts would enable you to focus your financial resources on saving your home. And second, the lender knows that you have an attorney, even if you contact and negotiate directly with the lender yourself, assuming you used an attorney in your Chapter 7 case. Your lender’s knowing that you have legal counsel available and perhaps guiding you may help it to be a bit more flexible.
Chapter 7 also doesn’t help with property taxes, so the comments above about that apply here, too.
Catching Up through Chapter 13
Simply put, the three-to-five year Chapter 13 option would likely give you by far the most amount of time to catch up on your mortgage payments, would do so under very flexible terms and would give you protection from your mortgage lender throughout the process. And it provides a safe method to bring any property taxes current.
Instead of a few months, you’d generally have the full length of your case — three to five years — to catch up. Dividing your arrearage into 36 or 60 monthly installments instead of the 10 or 12 that a forbearance would likely limit you to would lower your monthly catch-up payment significantly, making holding onto your home that much more feasible. It also makes it easier for you to catch up on any property tax arrearage.
The flexibility would come in at least three places.
First, the catch-up payments would not necessarily need to be equal throughout the Chapter 13 case — unlike in a Chapter 7 case or without bankruptcy. You would likely be able to start with lower payments at first to enable you to pay other even more important obligations, such as to hold onto your vehicle, to catch up on some back child support or to bring the property taxes current. How much you could do this would depend on the details of your case, but you can see how this could be a critical advantage in your overall financial rehabilitation.
Second, if your circumstances change — better, worse or just different — Chapter 13 allows you to make changes in your payment plan midstream.
Third, if a year or two later you decide that you no longer want or need to keep the house, you have a number of options open to you, including selling or surrendering it. At that time you can either continue in your Chapter 13 case under new terms, dismiss it if you need no further bankruptcy protection or convert it into a Chapter 7 case to discharge any remaining debts.
And throughout this process you would have protection from foreclosure or other collection action, not just by your mortgage lender, but also by your property tax creditor. That latter point is important because legally preventing a tax foreclosure protects not just you but also the mortgage lender. You certainly can lose this protection if you do not fulfill the terms of your plan or if you act irresponsibly in some other way, but it provides some important peace of mind that is simply not available outside bankruptcy and only for a very short period of time in Chapter 7.
Contact an Experienced Rockwall Bankruptcy Lawyer
To schedule a free, confidential consultation with an experienced bankruptcy lawyer in Rockwall, Texas, please call me at 972-772-3083 or fill out this form and I will contact you to schedule an appointment. I do my best to answer all calls, but sometimes I am in court or with another client. Please leave a message if I do not answer the phone, and I will return your call as soon as possible.
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