Mortgages

Montgomery Lawyers Assisting Individuals Filing for Bankruptcy

For many people undergoing financial reorganization, mortgages represent their largest and most challenging debts to resolve. It is not uncommon for financially responsible people to have difficulty keeping up with these payments, particularly if they lose their jobs or experience a sudden medical emergency. Chapter 13 bankruptcy allows debtors to catch up on their missed mortgage payments and save their homes from foreclosure. An experienced bankruptcy attorney at Grainger Legal Services can help individuals near Montgomery develop the right debt repayment plan to save their residences, and also evaluate whether there may be alternative solutions.

Stopping Foreclosure Through Chapter 13

One of the main reasons that some people file for Chapter 13 bankruptcy is to buy time to cure a mortgage default. An automatic stay, or stop in proceedings, goes into effect as soon as you file for bankruptcy. The stay will prevent your mortgage lender from foreclosing on your home or attempting to collect your debt in any other way. More generally, it will stop all creditors from continuing their collection efforts.

In recent years, many consumers have placed their hope in obtaining a “loan modification” from their mortgage company as a means of lowering their interest rate, lowering their payments and/or getting caught-up. While this was originally intended to help prevent foreclosures, it has instead become the leading cause of foreclosures we see in our law practice. Why? (1) Because the consumer places their trust in the hope for a modification instead of struggling to make their payments so they get further behind; (2) the overwhelming majority of loan modification applications are ultimately denied by the mortgage company after a prolonged process (often 1-2 years) of sending in paperwork which often gets lost; and (3) the mortgage company will foreclose while the loan modification discussions are underway leaving the consumer with a false sense of security. A small percentage will get approved which may give people a false hope who are really in need of legal protection. A Chapter 13 can provide that protection while allowing the consumer the opportunity to continue to pursue a loan modification without the threat of foreclosure and at the same time spreading the amount they are behind over a 3-5 year time period.

In order to file for Chapter 13 bankruptcy and obtain an automatic stay against a foreclosure sale, your debt repayment plan must address your mortgage arrearage (any missed payments) as well as provide that you will resume paying the future payments that will be owed on your mortgage as they become due. The plan can last between three and five years. If you do not include a provision in your Chapter 13 plan to pay off mortgage arrears, the court may approve your plan, but the lender may proceed with the foreclosure. In that situation, filing for bankruptcy simply postpones the foreclosure, giving you a few months to make other plans.

If you do address any arrears as well as future mortgage payments in your plan, the automatic stay will be in effect as long as you work towards a bankruptcy discharge by making timely payments towards your Chapter 13 plan. However, the bankruptcy court can later on permit foreclosure proceedings to move forward if you do not make regular timely payments on your mortgage while at the same time making your plan payments to get caught up. In other words, it only works if you can both afford your house payment while at the same time making your plan payment designed to get you caught up.

In addition to saving your home from foreclosure, Chapter 13 can allow you to get rid of junior mortgages if your first mortgage is secured by the value of your home and there is no equity left to secure the junior mortgages. This happens when a home drops in value from the time you buy it. You can ask the bankruptcy court to strip off a second or third mortgage, which will be re-categorized as unsecured debt.

In Chapter 13 bankruptcy, debts are organized by priority, and unsecured debt takes the lowest priority. While a portion of it may be paid off, any remaining unpaid unsecured debts are discharged after you have successfully completed your debt repayment plan.

Contact a Dedicated Bankruptcy Attorney in Alabama

For many people, saving a home is the primary reason for applying for Chapter 13 bankruptcy. In order to pursue this goal, you will need to have sufficient monthly income to make payments that cover both your mortgage and any payments you may have skipped. Bankruptcy lawyer Charles Grainger can evaluate whether Chapter 13 is a good solution for you. We serve clients throughout South-Central Alabama from our offices located in Montgomery, Prattville, and Troy. Call Grainger Legal Services at (334) 260-0500 or contact us online to schedule a free consultation.