I’m Far Behind on My Mortgage. Will Chapter 13 Bankruptcy Cure My Mortgage Arrears?

Filing Chapter 13 bankruptcy any time before a foreclosure/trustee sale, will stop a foreclosure, and cure a homeowner’s mortgage arrears if they successfully complete a Chapter 13 bankruptcy.

How does Chapter 13 bankruptcy cure mortgage arrears? Chapter 13 bankruptcy is a plan to repay some or all of your debts over a period of usually 3 to 5 years. When a homeowner is behind on his/her mortgage payments, the chapter 13 plan pays back to the mortgage company, whatever the homeowner is behind on the mortgage. The effect is that after the homeowner completes his/her Chapter 13 plan, the homeowner’s mortgage is current and all other debts the homeowner had (for example credit cards) are discharged.

Here’s an example. Let’s say Bob home owner is behind 12 months on his mortgage payments because he lost his job a few months back, and has now recently become employed again.

Bob gets a notice from his mortgage lender in the mail stating that they are considering foreclosing on Bob’s home because he hasn’t made his payment in 12 months. Bob and his attorney then file Chapter 13 for Bob, and state in the chapter 13 plan, that Bob will pay his mortgage arrears a certain amount over the next 3 to 5 years.

Bob then goes the next 3 to 5 years making only 2 payments each month for his debts. One payment goes directly from Bob to his mortgage company for the usual mortgage payment he had, and the other, a small amount to the Chapter 13 bankruptcy trustee for all the debts that Bob had when he filed bankruptcy.

The Chapter 13 bankruptcy trustee takes Bob’s monthly payments, and distributes most of it to Bob’s mortgage company for the arrears.  Over the 3 to 5 year period of Bob’s payment, the trustee has paid the mortgage arrears to the mortgage company in full.

The effect is, now Bob is current on his home, and he’s cured all of his arrears through Chapter 13 bankruptcy. Also, in this scenario, if Bob had any unsecured debt, like credit cards, those would be discharged at the end of the payment plan whether or not they were paid back in full.

Chapter 13 bankruptcy works well for lots of people who had a temporary period of economic hardship, and just need some time to recover.

If you’re substantially behind on your mortgage, you don’t have to lose your home. You have options. Here at the Yontz Law Group, we are more than happy to meet with anyone to explain their options.  Contact an experienced Arizona Bankruptcy Attorney here.

Please be aware that any information on this website is for educational purposes only and is not intended to be legal advice. If you need legal advice, please contact an attorney, or contact the Yontz Law Group, P.C. for a free consultation with a bankruptcy attorney in Phoenix, Mesa, Gilbert, Apache Junction, Chandler, or throughout the state of Arizona.

After foreclosure in Arizona, will my lender come after me for the deficiency?

It depends on the type of loan you as homeowner had/have.  If the loan was used to purchase the home, then the loan is considered a “non-recourse” loan, and the homeowner has no personal liability for it, unless there is excessive damage to the home.

In most cases, if the loan was NOT used to purchase or improve the home (such as a HELOC) the lender can sue the homeowner to collect on the loan.  For example, if the homeowner purchased the home, and then borrowed $100,000 under a HELOC, that lender can file a suit in court to collect on the promissory note.

 Would bankruptcy benefit me if I am responsible for the deficiency?

Depending on the homeowner’s financial situation, and depending on the chapter, filing bankruptcy can discharge, or reorganize this type of debt (unsecured debt, once the home is foreclosed). It is common for a homeowner who has/had a significant outstanding balance on a HELOC to file bankruptcy once they’ve realized that foreclosure is probably inevitable, or that foreclosure is the best business decision to make in their situation.

The homeowner must be aware that deficiency statutes, or “anti-deficiency” statutes are different in every state. Therefore, if the homeowner is considering filing bankruptcy after foreclosure, or in anticipation of foreclosure, the homeowner should always seek the advice of an experienced Arizona bankruptcy attorney (or a bankruptcy attorney in whichever state you’re in) to become educated on how bankruptcy would effect them.

Please be aware that any information here or on these sites is for educational purposes only and is not intended to be legal advice. If you need legal advice, please contact an attorney, or contact the Yontz Law Group, P.C. for a free consultation with a bankruptcy attorney in Mesa, Gilbert, Apache Junction, Phoenix, or throughout the state of Arizona.