Beginning in October of 2016, the Chapter 13 procedures in the Northern District of Texas have changed dramatically. The new rules require that if you are more than 60 days behind on your home mortgage, then you must pay your mortgage payments as well as the past due payments through a Chapter 13 Trustee. If you cannot pay your mortgage once the case has been filed, then your case can be dismissed, or you might have to surrender your home.
If you are behind on your home mortgage and contemplating bankruptcy to seek a modification of your mortgage loan or to pay your past due payment through a plan, then contact an experienced bankruptcy attorney in Dallas, TX, to discuss your case.
Attorney for Bankruptcy with a Home Mortgage in Dallas, TX
Many people who are considering filing a Chapter 7 or Chapter 13 bankruptcy want to know how the bankruptcy will affect their mortgage and their ability to remain in their home. Although you are filing for Chapter 7 bankruptcy, you could lose your home if you are not able to stay current on the mortgage payments. If you file for a Chapter 13 bankruptcy, you might be able to keep your home by bringing your mortgage payments current through the Chapter 13 plan.
Contact the experienced bankruptcy attorneys in Dallas, TX, at Littlefield Law Firm to discuss your case.
Call (972) 812-0900 today.
Your Home Mortgage in a Chapter 7 Bankruptcy
If you qualify to file for Chapter 7 bankruptcy and your home is exempt, you can continue to make your mortgage payments if you want to keep your home. The Chapter 7 bankruptcy will discharge your personal liability for the home loan at the end of the case, but the lender's security interest in the property remains in force. If you do not make your payments, then the lender has the right to start a foreclosure action against you.
If you are behind on your mortgage payments and want to keep your home, you will have to come up with a plan to catch up on the payments. Unlike Chapter 13 bankruptcy, Chapter 7 does not provide a method for you to pay and reorganize through bankruptcy.
Is the Equity in Your Home Exempt?
The first thing to determine is whether any equity you have in your home is covered by a bankruptcy exemption. Because most of your debts will be discharged in a Chapter 7 bankruptcy, the trustee is entitled to sell your nonexempt property and use the proceeds to pay your unsecured creditor. If your home has a significant amount of nonexempt equity, a trustee may sell it.
Your Home Mortgage in a Chapter 13 Bankruptcy
Filing a Chapter 13 bankruptcy does not necessarily affect your home mortgage in most circumstances. While the bankruptcy action is proceeding through the court and after the bankruptcy, you must continue to make your mortgage payments so that the lender does not foreclose on the property.
If you are behind on the mortgage payments, you can pay off the pay due payments or arrears through your Chapter 13 repayment plan. A Chapter 13 repayment plan lasts between three to five years. If your mortgage payments are current, the lender cannot foreclose. Filing for a Chapter 13 bankruptcy effectively gives you more time to make up missed payments.
In some cases, if you do not have enough equity in your home to secure the second or third mortgage or home equity loan (HELOC), then the bankruptcy court can effectively "strip" the liens securing the mortgages and reclassify the debt as unsecured debt. The unsecured debt is then removed through your repayment plan. In most Chapter 13 bankruptcy cases, the debtor only pays a portion of their unsecured debt through the plan.
Cram Downs that Modify the Mortgage
In a few cases, a mortgage on real property can be modified in a Chapter 13 bankruptcy so that the new principal equals the actual fair market value of the home. This process is known as the "cram down" that applies to all forms of secured property including a loan on your motor vehicle. The cramdown to modify a mortgage is not available, however, for the mortgage on your residence that consists of real property.
The cramdown modification might be available to other types of mortgages including:
- loans for other buildings or land that is not part of your residence;
- loans for the purchase of a multiunit building;
- loans to purchase a mobile home; or
- loans that used other property to serve as security for the loan.
A cram down to modify a mortgage is relatively rare because, after the cram down modification of the mortgage to the actual value of the property, you may still have to pay off the entire new mortgage amount through your Chapter 13 repayment plan within the three to five year time period designated in the plan. For many people, paying that amount during that time period is not a viable option.
This article was last updated on Friday, February 16, 2018.