When borrowers fall behind on their mortgage payments, the bank typically requires immediate payment of ALL delinquent mortgage arrears, or payment over a very brief period of time - two to three months. This financial situation is typically insurmountable for a debtor who wishes to save their property.
The alternative to Chapter 13 bankruptcy is Chapter 13 bankruptcy. Chapter 13 of the United States Bankruptcy Code allows the debtor to restructure mortgage arrears payments over a three- to five-year period. This makes it feasible for the debtor to catch up on missed mortgage payments.
Chapter 13 bankruptcy is often referred to as a ""wage earners"" plan. The debtor must demonstrate to the Bankruptcy Court that he or she has sufficient routinely recurring income or steady wages to manage payment of a modest household budget and sufficient surplus income to repay the mortgage arrears within five (5) years.
In certain situations, mortgage arrears must be repaid with interest. This, however, is contingent upon the terms outlined in the loan documents governing the debtor's loan.
Chapter 13 also permits debtors to restructure bank-issued escrow advances. If the debtor's bank advanced payment for real estate taxes, property insurance, etc., those advances may also be repaid over the duration of a Chapter 13 plan, which cannot exceed five (5) years.
As an example, assume that the debtor's monthly mortgage payment is $1,200 and that the debtor has fallen 24 months behind on mortgage payments, totaling $28,800 in mortgage arrears. The debtor's bank has initiated foreclosure proceedings and is prepared to auction off the property.
Upon filing for Chapter 13 bankruptcy, creditors must suspend all debt collection efforts, including the bank's mortgage foreclosure.
The debtor can now devise a plan to repay the mortgage arrears based on a payment schedule that fits within his or her budget.
After filing for Chapter 13 bankruptcy, the debtor must remain current on ALL monthly expenses incurred AFTER the Chapter 13 filing date. Consequently, the debtor's income must be sufficient to cover its ordinary living expenses (mortgage, utilities, food, insurances, auto payment, medical expenses, etc.) as well as the Chapter 13 plan payment, i.e. mortgage arrears. In order to repay the mortgage arrears over the next five (5) years, the debtor must have a monthly surplus income of at least $480.00 above and beyond the cost of ordinary living expenses. Under a Chapter 13 plan, the debtor can save its residence if this is affordable.
Additionally, the Bankruptcy Court will require the debtor to repay unsecured creditors. The majority of courts require debtors to repay at least 20% of outstanding unsecured claims. In addition to being able to repay mortgage arrears, the delinquent must be able to pay unsecured creditors a dividend. Let's assume the debtor has $20,000 in credit card debt in our example. The Bankruptcy Court would expect our debtor to repay the unsecured credit card claims for a minimum of $2,000.00 within five (5) years. Therefore, the debtor's income must be sufficient to cover its ordinary living expenses, $480 per month in mortgage arrears, and $33.33 per month in dividends to general unsecured creditors.
As long as the debtor can afford to pay normal living expenses and the Chapter 13 plan payment, it will be able to keep its home under the protections of Chapter 13 of the United States Bankruptcy Code.
" - https://www.affordablecebu.com/
