Decreasing home values and multiple mortgages on properties can create opportunities for debtors in a Chapter 13 bankruptcy. According to a report issued on February 23, 2010 by FirstAmerican CoreLogic, more than 11.3 million homeowners owe more on their home than their home is now worth. FirstAmerican CoreLogic further reported that this number represents approximately one-fourth of all Americans with a mortgage. Many homeowners took out second and third mortgages against these homes, causing them to be totally underwater in terms of value.
Opportunity in Chapter 13 Bankruptcy to Cram Down or Strip Off Mortgage
In a Chapter 13 bankruptcy, opportunity exists for a debtor to wipe out or strip off 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 the cram down or strip off strategy.
The New Jersey housing market has been especially hard hit. In New Jersey, we are hit with the double whammy of decreasing home values and high real estate taxes. Recent statistics reveal that New Jersey's residential foreclosure rate increased nearly 30 percent in 2009, compared to the national average of 21 percent. There are many options available today for homeowners, including bankruptcy, defending the foreclosure due to lending abuses, mediation, and potential loan modification. Most important, a homeowner should not sit back and do nothing when faced with a foreclosure. If you deal with the problem head on, there is a much better chance of saving the home from foreclosure.
Different Reorganization Plans In Chapter 13 Bankruptcy
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. 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.
You can also propose a sale plan in the Chapter 13 bankruptcy. For example, you can file the bankruptcy to stop the foreclosure or sheriff sale and sell the house through the Chapter 13. This will provide you with time to market and sell the house under normal conditions instead of having the house sold for a deep discount at a sheriff sale or just letting the house go back to the bank. If there is any equity in the house at all you want to save whatever equity you can so that you can make some money on the sale of the home. The earlier on you deal with the foreclosure or default, the better chance you have to save the home from foreclosure.
Contact a New Jersey Bankruptcy Attorney
You should consult with a bankruptcy attorney early on in the process to discuss your options in dealing with the foreclosure or default. Contact a bankruptcy lawyer in our New Jersey offices concerning your rights.