Chapter 7 And Keeping House If Behind On Payments

[Bradshaw]

I am currently under a repayment plan for my 1st and 2nd mortgage. Due to losing a job and taking 2 1/2 months to find employment, I fell behind on the mortgage. It is currently 3 months past due. I also fell into a cycle of multiple pay day advance loans and a car title loan to make ends meet while unemployed. My mortgage lenders added a total of $700 dollars to my monthly mortgage payments to bring the accounts current within 13 months. In order to pay this additional $700, I stopped paying the pay day lenders and credit card bills. We qualify for Chapter 7(we live in Virginia and are under the median income guidelines). Can we negotiate a reaffirmation for our mortgages and keep our home if we do Chapter 7 and are behind on the payments? Or, do we need to try to catch the past due payments up($6,000) and then file for chapter 7? This route will take several months and I am afraid the payday lenders and credit card companies will take us to court and get judgements before then. My goal is to keep my home. Thanks.

ANSWER: You can file for chapter 7 and keep your house.  You need to be careful, as the 'repayment' plan you have may have an acceleration clause if you file bankruptcy, bringing the entire amount due.  Normally, you want to be as close to current as you can when you do chapter 7.  Now, Chapter 13 is a repayment, whereby it will bring you current thru the case, while discharging the rest of the unsecured debt.

---------- FOLLOW-UP ----------

The only clause pertaining to bankruptcy in the repayment plan docs states "If you file bankruptcy, this plan is deemed null and void." I assume this is the same as an "acceleration clause." If we file Chapter 13 and only have $40 in disposal income, how does that effect the repayment plan? I would need at least $100 a month for 60 months to catch the mortgage up under Chapter 13. I can monkey with some of the numbers to come up with the additional $60 in disposal income so would that mean we would not pay the unsecured creditors anything under the chapter 13? Thanks for your help.

[Neville]

Yes, that is the clause I am referring to.  If you do file Ch13, then the arrears(the amount deferred) would be paid thru the Chapter 13.  You should sit down with a bankruptcy lawyer to work thru your budget to see if you qualify for Ch13.

I am in Illinois.