Although the economy may be showing signs of possible improvement, the New Jersey housing market is still suffering. According to recent statistics, New Jersey’s residential foreclosure rate increased nearly 30 percent in 2009, compared to the national average of 21 percent. Unfortunately, no one expects the foreclosure rate to drop any time soon. Homeowners who find themselves struggling to make mortgage payments do have options, however, and filing for bankruptcy may allow them to preserve some of their assets – including their homes – and get out of debt.
Chapter 13 Bankruptcy May Be the Best Option to Save Your Home
One option for homeowners facing foreclosure is Chapter 13 bankruptcy, which allows debtors to reorganize their debts and pay them off according to a three-to-five year repayment plan. Once a party files for Chapter 13 bankruptcy, all debt collection efforts cease, and the debtor is given the opportunity to formulate a repayment plan. In some cases, the plan will allow the debtor to pay the amount overdue on his or her mortgage over the course of the repayment plan, thus preventing foreclosure. At the end of the repayment period, the court will discharge any remaining debts.
In a Chapter 13 bankruptcy, you have 60 months to catch up on payments on any arrears or amounts you have fallen behind on a mortgage. Upon the filing of the Chapter 13 bankruptcy, the original mortgage is reinstated regardless of how far you are behind and you can take the amounts in arrears and restructure over this 60 month plan. You also have the option of proposing a sale plan through the bankruptcy. This gives you time to market and sell the house instead of having the house sold at a sheriff sale in the foreclosure. Most important, the Chapter 13 bankruptcy must be filed before the sheriff sale in order for you to be able to save the home because once the sheriff sale occurs, you lose title to the property.
Mortgage Amounts Exceeding House Values Can Create Opportunity in Bankruptcy
According to a report issued on February 23, 2010 by First American CoreLogic, more than 11.3 million homeowners owe more on their home than their home is now worth. This number represents approximately one-fourth of all Americans with a mortgage. Even worse, many of these homes are encumbered by second and third mortgages causing these homes to be totally underwater in terms of value. In a Chapter 13 bankruptcy, this creates an opportunity for a debtor to wipe out these second and third mortgages where the home is worth less than the amount owed on the first mortgage. Many homes are saved from foreclosure with this strategy, usually referred to as a “cram down” or “strip off.”
Chapter 13 bankruptcy is not, however, right for everyone. It requires that the debtor have income sufficient not only to pay the amount past due on his or her mortgage, but also to resume regular mortgage payments. Additionally, a foreclosure will appear on a credit report for seven years while a bankruptcy will appear for 10.
If you or someone you love is facing foreclosure, an experienced bankruptcy attorney may be able to help. Only a knowledgeable attorney can explain your options and provide you with the information that might allow you to protect your assets.
