By: Jeena Cho, San Francisco Bankruptcy Attorney
If your are at risk for losing your home due to missed mortgage payment, Chapter 13 may be a way to save your home. In a Chapter 13, you are given up to 60 months to “make-up” the arrearages (missed payments) on your home. Let’s take a simple example. Suppose your monthly mortgage payment is $3,000 and you have missed 6 months of payment. Assuming you qualify for Chapter 13 bankruptcy, you will be given up to 60 months to repay the $18,000 ($3,000 x 6).
There are some practical considerations - namely “feasibility.” In non-lawyer speak, that’s simply asking “can you afford the monthly payment?” Going back to our example, if you cannot afford the approximately $400 per month ($24,000/60 months), you cannot file for Chapter 13.
Another benefit to Chapter 13 is that we can “strip” or remove the second mortgage on your home assuming the fair market value of your home is worth less than the first mortgage.
For example:
1st mortgage - $500,000
2nd mortgage - $200,000
Fair market value (FMV) - $350,000
Since the FMV of $35,000 is less than the first mortgage, we can “strip” the second mortgage of $200,000. Assuming you complete your Chapter 13 plan, you will be left with just your first mortgage upon completion. Remember, your second mortgage will not be stripped unless you make every single Chapter 13 payment.
Disclaimer: Unfortunately, it is impossible to give legal advice over the internet, no matter how well researched or written. Before relying on any information I give, contact a lawyer to discuss your particular situation. I am a San Francisco bankruptcy attorney. The information given is based on California law.
