Keeping Your Home through Chapter 13 Bankruptcy

One of the big advantages that Chapter 13 bankruptcy filings have compared to Chapter 7 bankruptcies is that a Chapter 13 bankruptcy action affords the debtor the opportunity to save their home when the debtor is behind in their mortgage payments or is facing foreclosure. While any bankruptcy filing stops or automatically stays any action by the lender from going forward, including a foreclosure, a chapter 13 allows the debtor to actually cure arrearage and save the home from being foreclosed once the bankruptcy is over or the stay has been lifted. This feature renders the Chapter 13 option preferable for many homeowners who want to stay in their home. 

In order to keep their home, a Chapter 13 debtor must make the ongoing monthly mortgage payments during the pendency of the bankruptcy case in addition to curing the arrearage over the life of the chapter 13 plan. The past mortgage debt – including principal, interest and late fees–can be spread out over the course of the bankruptcy to be paid back in monthly increments. Accordingly, while a Chapter 13 bankruptcy filing can stop the lender on your first mortgage from foreclosing on your real property, it does not provide relief from having to make mortgage payments, old or new.

However, in some circumstances, it affords relief from having to pay second or third liens which lenders may have on the property. Often people will take out a second mortgage on their home or use their equity to serve as collateral for a line of credit. In situations where the amount owed on the primary mortgage exceeds the value of the house, a Chapter 13 debtor can “strip the lien” from second or third mortgages. Essentially, this converts those secured claims into unsecured ones. In bankruptcy, such conversion can and does have profound effects. Once the obligation due under a secured transaction is changed to an unsecured claim, payment of that claim comes from the amount that the debtor is already paying toward unsecured claims. In many instances, this results in a payment of just a few pennies on the dollar. So, Chapter 13 bankruptcy protection can help “underwater” home owners come out from under the burdens that debtors experience when they repeatedly use their home to secure credit.   

In Albuquerque, Giddens & Gatton Law, P.C. has bankruptcy attorneys who offer expert handling of Chapter 7, Chapter 11, Chapter 12 and Chapter 13 bankruptcy cases and can provide advice over which type of bankruptcy action fits one’s particular needs. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, P.C. at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.