As of the date of this writing, over 40 million Americans are unemployed due to no fault of their own. This coronavirus pandemic has hit us all with vicious power. Corona has caused millions of Americans to fall behind on their mortgage payments. The good news is that many people will be able to use Chapter 13 bankruptcy to recover from this economic crisis and stop the foreclosure of their home.
The Delayed Payment Trap
Most mortgage companies have allowed people to skip mortgage payments during the corona quarantine. I have heard from clients that some mortgage companies have allowed them to defer as much as 4 months of house payments. The problem is that at some point down the road, the mortgage companies will demand that the arrearage payments get caught up. As a consequence, I predict we are going to see a massive wave of foreclosures towards the end of 2020 and early 2021.
The good news is that Chapter 13 bankruptcy can help some people save their homes from foreclosure. The bankruptcy automatic stay puts a stop to the foreclosure the instant the Chapter 13 is filed. We do not need permission from the bank to stop the foreclosure of your home.
The biggest mistake that I see people make is that they wait too long to file bankruptcy. Once a house is foreclosed, bankruptcy is not going to save it. Some banks will even lead consumers on by telling them that they will get a loan modification soon while the foreclosure date is fast approaching. The lead on continues until the day before the foreclosure and the bank responds, “I so sorry. Your loan modification was not approved.”
In a Chapter 13, we can take all of missed payments and late fees and spread them out over years. Chapter 13 allows consumers to catch up their house payments slowly so that they can function economically while doing it.
Once a Chapter 13 bankruptcy is filed, the consumer must make all future house payments in addition to the Chapter 13 payment. Chapter 13 is a great tool for stopping a foreclosure and getting back on your feet.
In addition to spreading out mortgage arrears, a Chapter 13 bankruptcy will allow you to eliminate credit card debt, medical debt, and any other unsecured debt. In some cases, we can also lower the interest rate on your car note. Chapter 13 takes care of the big picture. In some situations, eliminating the burden of unsecured debt will free up enough income to be able to make future house payments again.
If someone is in a situation where they no longer have enough monthly income to cover the future monthly mortgage payments, Chapter 13 is not going to save the home.
When someone files Chapter 13 bankruptcy trying to save a house they can no longer afford, the end result is usually just a delay of 3 or 4 months in the foreclosure. When a person in a Chapter 13 bankruptcy misses future mortgage payments, the bank will what is call a Motion for Relief from the Automatic Stay. The bank will basically go before the court and explain that the mortgage payments have not been made and will seek permission to be excused from the bankruptcy so that they can restart foreclosure procedures.
Typically, in almost every Chapter 13 case filed in the Northern District of Georgia, future mortgage payments are made directly to the mortgage holder. The only exception to this general rule when the total number of mortgage payments owed to the creditor is less than 60 payments.
If you are behind on your mortgage payments, the obvious smart choice is to call my office and take advantage of a free consultation with an experienced bankruptcy and learn about all of your options. Call us today!