Seymour's Blog

Modify Your Mortgage in a Chapter 13

As many of you know, we help a lot of our clients with loan modifications. Many of our loan modifications are done for clients who don’t need to file bankruptcy.

We want to advise you, however, that the New Jersey Bankruptcy Court has recently instituted a new procedure to help people obtain loan modifications faster when they are going through the Chapter 13 Bankruptcy process therefore, you can now do a loan modification either outside of bankruptcy or under the supervision and guidance of the bankruptcy court.

Let’s assume you are paying your mortgage payment which involves your principal and interest, plus real estate taxes and property insurance in one lump sum monthly mortgage payment. Let’s say that your mortgage payment is $2,000 a month and that $1,500 a month is for your principal interest and $500 is for taxes and insurance.

While you are in a Chapter 13 bankruptcy, you only need to pay 60% of your principal and interest and the complete amount of your taxes and insurance.

Therefore, in this situation 60% of $1,500 is $900 and when we add the $500 taxes and insurance it comes to $1,400 a month.

That’s while you are under court supervision for exploring the loan modification you would pay $1,400 a month instead of $2,000 a month to the mortgage company.

The ultimate objective is to work out a loan modification under the supervision of the Bankruptcy Court, and when the Bankruptcy Court is involved the procedure seems to be more streamlined and quicker than outside of the bankruptcy process.

Therefore, if you are filing a Chapter 13 and working on a loan modification, the key point to remember is that you would be paying the mortgage company about 60% of you principal interest plus the full amount of your taxes and insurance. As a rough estimate this means that your monthly mortgage payment until a loan modification is approved will be about 70% to 75% of what you were previously required to pay.

This new procedure started in August 2011, and as the Bankruptcy Court hears more cases of this type we can give our clients further guidance as to how efficiently this process is working through the court system.

One reason you might not want to do the loan modification as part of the Chapter 13 is that if you are unable to make about 70% of your monthly mortgage payment, we often can negotiate a loan modification outside of bankruptcy, even if you can’t make any monthly payments at the present time.

Therefore, in certain situations you have more flexibility with the loan modifications outside of the bankruptcy process than inside the bankruptcy process.

Obviously, everyone’s case is different, and we will give you the personal attention that you need so we can determine the best procedure for handling your loan modification.

Feel free to discuss any questions that you have with us. We are here to help and to give you outstanding quality and service.