Chapter 13 Bankruptcy and Foreclosure

 

One of the most frequent reasons for filing a Chapter 13 Bankruptcy Petition and Plan is to allow a homeowner to avoid foreclosure and the loss of their home.  When a Chapter 13 Bankruptcy case is filed, any pending foreclosure proceeding is stayed by operation of law to allow the homeowner to propose a Plan to propose a way to avoid the loss of the home.  Due to the nature of New Jersey Foreclosure law, Chapter 13 is often the best alternative to a homeowner facing foreclosure.    Chapter 13 Plans may also eliminate other debts such as credit card debt or personal loans to allow homeowners to devote their income to saving their property.

Some common ways in which Chapter 13 cases address foreclosure are:

  • After filing Chapter 13 Bankruptcy, a homeowner can resume making their regular monthly mortgage payments, property taxes and insurance and make up the arrears on their mortgage over a period of 36 to 60 months.
  • With the expansion of Loan Modifications of mortgages, the Bankruptcy Courts have allowed Chapter 13 cases to propose Plans in which the homeowner seeks a Loan Modification Agreement with the Mortgage Company.    Chapter 13 debtors may also utilize the New Jersey Bankruptcy Court Loss Mitigation Program to assist them in negotiating a loan modification agreement with their mortgage company.   In some cases, the property owner can propose a reduced monthly payment while they are negotiating the modification.
  • Chapter 13 Plans may provide for the sale or refinancing of a home or other property facing foreclosure to avoid the loss of equity while also addressing other debts.

Some Examples:

  • If you are 6 months behind on your mortgage payments of $2,500.00 per month and file a Chapter 13 Petition and Plan. The Plan proposes that you begin making your monthly mortgage payment and to pay the arrears on your mortgage of $15,000.00 ($2,500.00 x 6 months) over a period of 60 months by making a payment to the Standing Chapter 13 Trustee each month of $250.00 plus the Trustee’s commission (maximum of 10% by law).
  • If you are 6 months behind on your mortgage payments and your home is worth substantially more than the amount of the mortgage(s) on it and you have now decided to sell it to avoid foreclosure and a sheriff sale, but you need more time to find a buyer who will pay a fair price. A Chapter 13 Plan would allow you a reasonable opportunity to make a diligent effort to sell your home provided that the mortgage holder was provided with ‘adequate protection’ while you were attempting to sell the home. What constitutes ‘adequate protection’ must be determined on a case by case basis. For instance, the Bankruptcy Court may require that you begin paying the interest on the mortgage and taxes and insurance on the property while you are attempting to sell it.
The information set forth above is not legal advice which can be provided to you only after a full review and evaluation by an attorney of your particular circumstances and the remedies which may be available.