If you are facing home foreclosure in Michigan, Chapter 13 bankruptcy may be a good option to save your home. Bankruptcy laws exist exactly for this reason: to help people in debt avoid losing everything. Doctors, lawyers and even Presidents have used the bankruptcy laws to help themselves.
If you fall behind on your monthly mortgage payment the bank or mortgage company who loaned you the money to purchase your home can sell your home to recover their money through a process known as foreclosure. A mortgage is a “secured debt.” A “secured debt” is one in which the “creditor” (the bank or company that loaned the money out) can take steps to require the “secured property” (home, land, automobile, or other item of personal property) to be sold in order to reimburse the creditor for the defaulted loan.
Generally it happens in this fashion. For example you purchase a home and have a mortgage debt. In my example your monthly mortgage payment is $750 per month. A person who owes money is called a “debtor.” When the debtor fails to make their monthly mortgage payment they will be notified about their default. In most instances it is when the debtor falls two or more payments behind that the creditor begins the legal process of foreclosure. The debtor should be sent notice or notice is published that indicates a date and time for a foreclosure sale. Usually the debtor gets advance notice of the upcoming foreclosure sale date, leaving them a few weeks to either raise the money to “reinstate” the loan (pay the past due amounts and late fees to bring the mortgage fully current and up to date) or to seek other legal options, including Chapter 13 bankruptcy.
Most people have heard of the legal term bankruptcy but may not really understand what it is or how it works. Bankruptcy is a special system of federal laws to help debtors deal with their debt problems in an ethical and fair manner.
There are different types of bankruptcy known as “Chapters.” Chapter 7 and Chapter 13 are the two types of bankruptcy cases that individuals and married couples can file. (As opposed to other Chapters that are for corporations or other legal entities such as “family farmers.”)
Chapter 13 is a form of bankruptcy in which the debtor proposes a “repayment plan.” In a Chapter 13 the debtor proposes a regular monthly payment to go toward their debt. (See 11 U.S.C. Section 1322). If the debtor resides in a home and the mortgage payments are in arrears, the Chapter 13 plan can modify the creditor’s rights pertaining to foreclosure. The foreclosure proceedings are subject to the “automatic stay” (a federal court order that prohibits any and all creditors from taking any actions to collect or enforce a debt).
When the Chapter 13 bankruptcy is filed in the Federal Court before the foreclosure sale has taken place, the debtor is permitted to pay the mortgage creditors through the repayment plan. This provides for the regular monthly mortgage payment to be paid and for an additional amount to be paid that will go toward the arrearages, in order to bring the arrearages current during the term of the plan. Plans generally are for a period of three (3) to five (5) years.
So in my example of a $750 monthly mortgage payment falling behind, the math might look like this:
$750 per month payment
3 missed payments, $2,250 in arrearages
Late fees $350
Total amount to bring loan current (Reinstatement) $2,600
A Chapter 13 case is filed and the Chapter 13 plan proposes that within 30 days from the day the case is filed the debtor will pay to the Chapter 13 Trustee $750 for the regular current monthly payment, and an additional $200 to go toward mortgage arrears (total monthly payment of $950). In paying a monthly payment of $200 more than the regular monthly payment, the debtor will provide the Trustee with money to eventually bring the $2,600 in arrearages current over the term of the plan (3 to 5 years). There are additional fees to factor in such as attorney fees, trustee fees and misc. costs. Once enough has been paid to catch up the arrears the mortgage debt can be fully current and reinstated back to its original amount ($750 per month).
So (in addition to the additional fees and costs just mentioned), by making your regular payment of $750 each month and the additional $200, the mortgage company will over time be fully reimbursed for the past amounts due. This allows you to pay off what you owe over time, instead of immediately all at once, and avoid losing your home. Unsecured debts (like. credit cards, personal loans, medical bills, and other bills) can also be addressed in a Chapter 13 and an attorney can explain how this works.
If you fall behind on your monthly mortgage payment you have options and I suggest that you call an experienced bankruptcy attorney who handles Chapter 13 bankruptcy. If you are in St. Joseph, Cass, Branch or Kalamazoo county, I encourage you to contact me for a free initial phone consultation on your case.
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