If you have have fallen behind on the mortgage payments on your home and are facing foreclosure, then a Chapter 13 may be the right option for you.  When you file a Chapter 13 Bankruptcy, you receive the benefit of the Automatic Stay. This means that the Chapter 13 bankruptcy filing will stop your mortgage lender’s foreclosure case, and provide you the opportunity to save your home through the filing of your plan of reorganization.  You should contact an experienced Bankruptcy Attorney for help explaining your options.

Curing mortgage arrears THROUGH A CHAPTER 13 PLAN

The Bankruptcy Code allows you to propose a plan to cure your mortgage arrears over the life of your plan and maintain regular mortgage payments directly to your mortgage company. 11 U.S. Code § 1322. This means that when your case is filed, any foreclosure case is stopped. You can then resume your regular monthly payments directly to your mortgage company and the mortgage company would be required by law to accept them.

Separately, you make a payment to the Chapter 13 Bankruptcy Trustee to “cure” your mortgage arrears.  The Bankruptcy Code allows you up to five (5) years to complete that plan, but upon completion you would again be current with your mortgage.  In a Chapter 13 Bankruptcy, the mortgage company must file a Proof of Claim with all of their allegations about the past due balance, the current mortgage payment amount, and all of the documents to support their calculations. At the end of the Chapter 13 case, the mortgage company is also required to prove if you are still behind – making sure you can move on with your life.

The Chapter 13 Bankruptcy Plan proposing to cure mortgage arrears is ideal for someone that had a temporary set back with their income or expenses that caused them to fall behind on their mortgage, but is now back on their feet. Your Chapter 13 Bankruptcy attorney can also use your legal rights to make sure you pay the correct amount and protect your home from foreclosure.

loan modification in a chapter 13

What if the amount of your mortgage arrears are so high that it makes it not feasible to propose to cure those arrears over a five year period? What then? Well, there are other ways to save your home and a skillful, experienced bankruptcy attorney can help you craft a creative plan that will address your situation.  For example, your plan can propose treatment of your mortgage company that provides that you will attempt to obtain a loan modification. 


What is 8+3?

The Bankruptcy Courts in New Jersey instituted a Bankruptcy Court Loss Mitigation Program – also known as LMP. When you file a Chapter 13 Bankruptcy case, you can apply to the LMP once you have filed your Chapter 13 petition and plan.  The Bankruptcy Court enters a Court Order Approving Entry into the Loss Mitigation Program.

The Loss Mitigation Order Order, among other things, would provide a time period that the Loan Modification Application must be submitted by you and reviewed by your mortgage company. The LMP Order also allows you to propose an “adequate protection payment” to the mortgage company while you are negotiating the Loan Modification.  The adequate protection payment may allow you to pay only 60% of your normal principal and interest payment plus the monthly escrows (taxes and insurance) to the mortgage company, pending the resolution of the Loan Modification negotiation.

While we realize that the Loan Modification process can be tedious to say the least, the Bankruptcy Court’s Loss Mitigation Program is helpful to the process in a few ways. First, due to the Bankruptcy automatic stay, your mortgage company cannot continue foreclosure while you are trying to negotiate a loan modification.

Next, the Bankruptcy Loss Mitigation Program allows you to resume making a mortgage payment, which may show the mortgage company good faith and an ability to make a mortgage payment.  This can be beneficial when your mortgage company’s underwriter is reviewing your Loan Modification.

Filing a Chapter 13 Bankruptcy prevents the mortgage arrears from continuing to grow while you apply for the loan modification. By resuming monthly mortgage payments, you, at worst, do not fall further behind. This doesn’t happen if you are attempting to obtain a loan modification without the protection of a bankruptcy filing.

Finally, the Bankruptcy Court has set up a website portal to allow Bankruptcy Attorneys, or debtors, to exchange documents with your mortgage company. This prevents the mortgage company from claiming that the did not receive certain documents – which happens often when dealing directly with a mortgage company. As your Bankruptcy lawyer, we can see every document which was provided, when provided, through the Loss Mitigation Portal. All of these factors weigh in your favor when processing a Loan Modification Application.


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