These additional 5 tools, especially in combination, can tackle and defeat your mortgage and other home-debt problems.
In my last blog post, I gave you five huge ways that Chapter 13 can save your home. I’ll summarize those briefly here, and then give you and explain another five of them.
Here are the first five. Under Chapter 13 you can:
1. … stretch out payments for catching up on back mortgage payments, as much as five years.
2. … cur or erase your other debt obligations so that you can afford your mortgage payments.
3. … prevent income tax liens, child and spousal support liens, and judgment liens from every attaching to your home.
4. … pay the debts that cannot be discharged (legally written off) in bankruptcy while being protected from those creditors putting liens on or enforcing liens against your home.
5. … get rid of debts owed to creditors which could otherwise put and enforce liens on your home.
And here are today’s additional five Chapter 13 benefits for your home:
6. … avoid paying all or some of your second (or third) mortgage.
This is the powerful “mortgage strip” that can save you hundreds of dollars a month and sometimes many tens of thousands of dollars over the time you live in your home.
If—and only if—the value of your home is no more than the balance of your first mortgage, your second mortgage can be treated as an unsecured creditor. If so, you can “strip” that second mortgage off the title of your home. This means you can stop making the monthly payments on it. The entire amount that you owe is added to your pool of other unsecured creditors, which are all paid only as much as you can afford to pay over the life of your three-to-five-year Chapter 13 case. And then at the end of the case whatever has not been paid is completely discharged at the end of the case.
Although property values have increased in the last couple of years, there are still millions of homes “under water”—owing more debt than they are worth—and many of these are worth less than their first mortgage. If this applies to you, it may be reason enough to do a Chapter 13 case. You can usually end up paying only pennies on the dollar—or sometimes even nothing—on your second (or third) mortgage. This leaves your home both much easier to hang on to and much closer to not being “under water.”
7. … get more time to pay property tax arrearage, while protecting your home from both tax and mortgage foreclosure.
If you have fallen behind on your property taxes, this creates two problems. First, you risk losing your home to a property tax foreclosure by the county or whatever other governmental entity is collecting the tax. Second, since your mortgage lender requires you to keep current on your property taxes and considers you falling behind as an independent violation of your mortgage agreement, this gives your lender a separate reason for IT to foreclose on your home.
So Chapter 13 gives you time to catch on your property taxes while both protecting you from the property taxing entity itself and preventing your mortgage lender from using your unpaid property taxes as a separate reason for foreclosing on your home.
8. … prioritize paying many home-related debts—such as property taxes, support liens, utility and construction liens—that you need to and often wish you were able to pay.
Neither Chapter 7 nor Chapter 13 enables you to simply get rid of these special kinds of liens on your home. But Chapter 13 allows—indeed often requires—you to pay them in full ahead of most of your other creditors. This often benefits you because it allows you to focus your limited financial resources on paying those debts which will preserve and add equity to your home.
9. … get rid of judgment liens, so that they no longer attach to your home.
If a creditor sues you and you don’t respond by the deadline to do so, the creditor will get a judgment—a court determination that you owe whatever the creditor’s lawsuit says you owe. Most of the time that judgment creates a judgment lien against your home. Depending on a number of factors like the value of your home, the amount of your mortgage(s) and other liens, the amount of the judgment lien, and the amount of the homestead exemption that you are entitled to, bankruptcy will allow you to “void”—get rid of—that judgment lien. This is very important because otherwise even if the underlying debt is discharged, the judgment lien would survive the bankruptcy, causing you to still have to pay the debt eventually, in part or in full.
If you qualify for judgment lien “avoidance” it can also be done under a Chapter 7 case, but it is often better in a Chapter 13 case when used in combination with these other tools.
10. .. sell your house without the pressure of a foreclosure sale, either just a short time after filing the Chapter 13 case, or sometimes even three, four years later.
If you are close to selling your home, or have just started the process but want to sell as soon as you can, Chapter 7 usually buys you very little time in avoiding a pending foreclosure. It gives you very little leverage or flexibility. In these situations, Chapter 13 will usually buy you more time to sell while preventing foreclosure. And, especially if you have some equity in your home, it will give you more payment flexibility.
Or if you want to sell your home a few years from now, Chapter 13 can give you some very valuable flexibility in catching up on a mortgage arrearage. You may be planning on downsizing once your children finish high school or you reach some other important life event. Or you may want to wait until property values increase over the next couple years. Under Chapter 13 you can often put off catching up on some or all of your mortgage arrearage until that anticipated sale date, making it more financially feasible to keep your home in the meantime.