Chapter 13
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Chapter 13 Reorganization Bankruptcy - Overview
Chapter 13 bankruptcy allows homeowners to stop the foreclosure process, and gives them the opportunity to repay mortgage arrears on a five-year repayment plan, and adjust their debts according to a three to five-year, court-approved repayment plan.
Many people file Chapter 13 bankruptcy in order to cure mortgage arrears, or stop a related foreclosure sale, and force their secured lenders to accept repayment of the arrears on an installment basis. Homeowners with regular ongoing income are allowed to continue making regular monthly mortgage payments and avoid foreclosure.
We also help individuals file Chapter 13 bankruptcy to save valuable vehicles that are in arrears and facing repossession, or that have already been repossessed. Chapter 13 bankruptcy allows individuals to regain possession of repossessed vehicles, after repossession, if the state law redemption period has not yet passed. That is, after repossession in California, borrowers can regain possession of their vehicle if they file Chapter 13 bankruptcy within 15 days of the repossession and notice of sale.
Chapter 13 bankruptcy may also be an option for those ineligible to file for Chapter 7 relief because they have already obtained a Chapter 7 discharge in the last few years, or they otherwise do not meet the income or asset requirements for Chapter 7. Unlike Chapter 7 bankruptcy, in Chapter 13 bankruptcy, the individual’s assets are not subject to liquidation. This type of bankruptcy may be the best option for those who do not meet the means the income requirements for filing Chapter 7 bankruptcy, or who do not want their non-exempt assets liquidated.
Also, Chapter 13 has the advantage of allowing homeowners to strip off certain second mortgages from their real estate, and allowing borrowers to "cram down" the value of an automobile or other secured debt.
Lien Avoidance—Wholly Unsecured Second Mortgages
Chapter 13 bankruptcy also allows qualifying individuals the opportunity to strip off and avoid junior trust deeds and other obligations from a primary residence. In order to qualify, the second trust deed or junior mortgage obligation must be entirely unsecured meaning that the junior mortgage or other obligation is not secured by any equity in the real estate (after the senior mortgages are accounted for).
For example, an individual with a primary residence with a fair market value of $500,000, a First Trust deed with a balance of $650,000 and a Second Trust deed with a balance of $250,000, would be able to avoid the second trust deed and have the lien removed from the property in a Chapter 13 case (assuming that the borrower otherwise qualifies for the Chapter 13 bankruptcy).
Apply for Loan Modification Application During Chapter 13 Bankruptcy
Cate Legal Group has been responsible for obtaining numerous loan modifications for our clients, while they are actively engaged in Chapter 13 bankruptcy. After the filing of a Chapter 13 case, individuals commonly submit loan modification applications and are oftentimes approved.
Upon receipt of a loan modification proposal from a mortgage lender, a borrower can request a court order dismissing the bankruptcy case, if it is not needed any longer, or formally approving the terms of the loan modification.