Suite 2800, Gulf Tower
Pittsburgh, PA 15219
412-391-8000
1-800-360-9392
Avoiding a Mortgage Foreclosure
Many people file a Chapter 13 simply because they have no other choice to avoid a mortgage foreclosure or Sheriffs sale.
Jack and Jane had owned their home in the suburbs for eleven years and had been very happy with both their neighborhood and the surrounding facilities, including the school system. They had been current on their mortgage payments throughout the entire eleven years and were also able to pay their other bills until Jack was laid off from his job for six months in 1989. Even though Jane was working on a part time basis, Jack's unexpected layoff left them without money.
Even though Jack did receive unemployment compensation for $200 a week during this time, Jack and Jane were unable to make the mortgage payments on their house and foreclosure proceedings were commenced. In addition, they had also fallen behind on their utility bills and their credit card payments.
By the time they considered bankruptcy, there was a Sheriff's Sale pending on their home, of which they were in serious danger of losing.
Luckily though, by this time, Jack had returned to work and was earning his full salary again. He thus had offered to make payments to wipe clear his past due balance. The mortgage company, however, refused to accept any payment less than the lump sum due. They also expected the couple to compensate them for all late charges due, plus attorney's fees encumbered as the result of the foreclosure work. Again, in this regard, the mortgagee would accept nothing less than what they considered the full amount due them.
Obviously, this was not a good alternative. They could list their house for sale and sell it for an amount necessary to fully repay the mortgage and their other creditors, and that way at least obtain the equity that they had in their house from the years in which they lived there. However, it is very difficult to sell a house in a very short period of time and considering such, Jack and Jane probably would have had to part with the house at a lesser price then it was worth and possibly a lesser amount than they actually needed.
That left the Chapter 7 and Chapter 13 Bankruptcy alternatives. If Jack and Jane had filed a Chapter 7 Bankruptcy the Sheriff's Sale would have been stopped, could have eliminated their unsecured debts such as charge cards and back utility bills but would have been forced to make some arrangement with the mortgage company by the conclusion of the five month bankruptcy period. This was unlikely.
Therefore, a Chapter 13 repayment plan was an excellent alternative. A budget listing their present income minus their present expenses was compiled, and it was discovered that Jack and Jane had $500 per month remaining after they were able to pay their current mortgage payments and necessary living expenses such as utilities, food, clothing, transportation and medical expenses.
The Chapter 13 Plan allowed them to pay the regular monthly mortgage payment each month and still pay an additional $500 per month towards the accumulated mortgage arrearages and other debt. Since Jack and Jane had less than $15,000 equity in their house and could have theorectically filed a Chapter 7 Petition, which would have completely eliminated the credit card debts and other unsecured creditors, they were in a position where they could pay anywhere from 30 percent to 100 percent of these unsecured creditors in their Chapter 13 Plan. They chose to pay back all of their creditors in full by making this additional payment of $500 per month for 60 months. In addition, none of the unsecures creditors received any interest, which was eliminated under the plan, thus resulting in further savings.
Click here to read more case histories.