Using Chapter 7 and Chapter 13 bankruptcy to modify mortgages

June 21, 2013 6:15 pm Published by

New Yorkers who have some unsecured debt and are behind on their mortgage may be able to file for Chapter 7 bankruptcy targeted towards their unsecured debt. This will allow the individual to remove unsecured debt without otherwise affecting their mortgage loan. However, the individual or household will not necessarily be able to modify their mortgage loan on this basis, which means that they may need to figure out a way to catch up on any unpaid mortgage payments.

One way that a person may be able to do this is by filing Chapter 13 bankruptcy directly after their Chapter 7 bankruptcy. Chapter 13 bankruptcy allows a person to enter into a structured payment plan to resolve any old debts. A household will not have remaining debt after filing Chapter 7 besides their mortgage payments, so the Chapter 13 bankruptcy will only affect the bank balance that they owe on their mortgage payments. However, this method does come with some risk.

When using Chapter 13 bankruptcy to manage past mortgage payments, the homeowner will have to pay both the payment plan and their existing mortgage payments. If the homeowner was already having difficulty making their mortgage payments, then this plan may not be feasible. However, if the homeowner can begin making payments through Chapter 13 bankruptcy, many mortgage lenders will be more willing to modify their mortgage or help them with a plan.

Many New Yorkers may be struggling with debt right now and considering Chapter 7 bankruptcy. Chapter 7 bankruptcy may dissolve many forms of debt, but there are certain types of debt, such as student loans, that may not be discharged. A bankruptcy law attorney may be able to help someone determine which type of bankruptcy is the best option for them and what the consequences of the bankruptcy will be.

Source: Fox Business, “Will Bankruptcy Help Mortgage Modification?“, Justin Harelik, June 11, 2013

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