Chapter 13 Bankruptcy and Mortgages

Chapter 13 BankruptcyIf you are behind on your mortgage payments then Chapter 13 bankruptcy is a great way to prevent foreclosure of your home and catch up on your mortgage.  Mortgage arrears can be paid over three to five years and often at no interest.  This may make it possible for you to protect your home and cure mortgage arrears in an affordable way.

However, if the underlying issue is that you cannot afford to make your mortgage payment then Chapter 13 bankruptcy is not a good solution.  Chapter 13 bankruptcy does not lower the interest rate on the mortgage.  It does not lower the mortgage payment or refinance the note in any way.  Chapter 13 bankruptcy requires that you make your mortgage payment each month after filing.  In addition, you must also make a payment each month to a trustee who takes that money and disburses the funds to the creditors provided for in the plan.

If the reason you cannot pay your mortgage payment each month is that you have other debt, then bankruptcy may be a good option for you.  Unlike a loan modification, bankruptcy also addresses your other debts.  Unsecured creditors, like credit cards, medical bills, pay day loans, and student loans, only get paid if the filer has disposable income.  If you can afford to pay your mortgage payment but cannot afford to pay it while paying these other creditors, then Chapter 13 may be a great solution to your problems.

Consider your situation this way.  First, can you afford to make your mortgage payment each month if you don’t have to pay your credit cards, medical bills, etc.?  If the answer is no then Chapter 13 isn’t going to help you keep your home.  Second, consider whether or not you should be trying to keep your home.  Do you have any equity in the home?  If not, is the monthly payment reasonable compared with what you would pay if you were to find another place to live?  Finally, speak with a bankruptcy attorney about your situation.  A qualified lawyer may be able to help you find a solution to your financial troubles.