Two of the most important things we want our clients and readers to learn from this month’s blog coverage on mortgage options and bankruptcy is that a) there are plenty of assistance options for when you’re behind on your mortgage and b) declaring bankruptcy does not always mean that you will lose your home and property. We are here to help keep you, your family, and your property safe and protected. However, beginning July 2021, many financial institutions and experts are expecting record numbers of foreclosures and evictions - so if you are behind on your mortgage payments and you or your homestead are located in the Tuscaloosa, Jasper, Fayette, Walker, Winston, Marion, Lamar, Bibb, counties - then call our office TODAY at 205-349-1280 for a free consultation.
First thing to know is that if you are behind on your mortgage payments, there is only one type of bankruptcy that allows you to handle those arrears through your bankruptcy case- that is a Chapter 13 bankruptcy. If you’re interested in filing a Chapter 7 bankruptcy, we recommend that you call our office and set up a consultation with our office regarding your bankruptcy and loan modification interest. In a Chapter 13 bankruptcy, you make monthly payments to the trustee’s office and from there, that money is distributed to your creditors based off of a payment plan you and your attorney will discuss. Your basic options for handling mortgage arrears through a Chapter 13 Bankruptcy are as follows:
1) Add ONLY the mortgage arrears into your Chapter 13 Bankruptcy Case.
Basically, this allows you to handle the arrearage on your mortgage by adding them into your case and making smaller, monthly payments on them instead of coming up with the full balance at that time, as most mortgage companies demand in order to avoid foreclosure. You would then start your payment history fresh with your mortgage company by paying them directly for that month’s payment immediately after filing your case and from there on out. For a more in-depth description of this process, check out this step by step article.
2) Add your arrears into your case AND pay your mortgage through the Chapter 13 Trustee. This is similar to our first option, in that you are still adding those arrears to your case to help break that balance down into a more manageable monthly payment throughout your Chapter 13 bankruptcy. However, you are also going to be using the Chapter 13 trustee and your monthly Chapter 13 Bankruptcy payments to be paying your monthly mortgage payments. A pro is that this allows you to put most of your big bills into one place so it’s one simple, easy monthly payment. If you’re having trouble with your mortgage company accepting or processing your payments in a timely manner, or just adding extra stress- this might be a good option for you. However, a potential con is that depending on your current mortgage payment, this could allow for a pretty high monthly payment to the Chapter 13 Trustee since you would be covering your mortgage payments through your case.
3) Add the ENTIRE balance of your mortgage into your Chapter 13 Bankruptcy Case. This is a more rare option for our clients. We usually only recommend this option to clients with a small balance of their mortgage left, where it would make their mortgage payments more feasible to pay it off in the term of their 3-5 year bankruptcy case versus the term left in their mortgage. This does mean that you would be done paying off your mortgage when you’re done with your bankruptcy case, so if the payments are in the best interest of the clients- this does allow for a massive reduction in debt stress off our client’s shoulders when they’re done with their case.
All in all, there are many different options and personalizations available within bankruptcy and there is no “one size fits all” approach to managing your finances – because every client, home, and financial situation is different. We always recommend reaching out to an attorney when considering your bankruptcy, mortgage, and payment options. If you or your home are located in the Tuscaloosa, Jasper, Fayette, Walker, Winston, Marion, Lamar, Bibb counties then call Eric Wilson Law today at 205-349-1280 to set up a free consultation and discuss the best options for you!