Seymour's Blog

Reduce Your Mortgage Payments While In Bankruptcy

The Bankruptcy Court in New Jersey has a new procedure that can help thousands of homeowners reduce their mortgage payments. The bankruptcy court now permits negotiations between your attorney and a representative from your mortgage company for the express purpose of modifying your mortgage when it is a hardship to pay your regular mortgage payment.

This procedure is called loan modification, and there several ways that your mortgage payments can be reduced. One way is to reduce the interest rate that you pay on your mortgage. Sometimes mortgage interest rates can be reduced to as low as 2%. For example, if you are paying 6% or more on your mortgage, there is a good opportunity to reduce your monthly payment.

Another way to reduce mortgage payments is to extend the term of your loan. For example, if you have 15 years left on your mortgage, the term of the mortgage could be extended to 20 years. Or, if you have 22 years remaining on your mortgage, the term of your mortgage could be extended to 30 years.

We cannot guarantee that a mortgage modification will be approved for you as part of your bankruptcy case. Every case has to be analyzed on its merits, and negotiations need to take place with the mortgage company’s representatives. It usually helps if you can establish a financial hardship or other hardship that prevents you from making your regular payments.

When considering a reduction of your mortgage payments, it generally doesn’t matter if you are up to date or behind in your mortgage payments, especially if you can show a financial hardship. Even if you are in foreclosure and subject to a Sheriff’s Sale, we could still work on negotiating a mortgage loan modification for you.

Let’s give you an example of how this procedure works. Once your bankruptcy case is started, you will only be required to pay about 60% of your mortgage principal payment, plus the full amount of taxes and insurance.

Using specific numbers, let’s say your mortgage payment is $1800 per month. Let’s also say that $1,500 represents your principal payment and $300 represents your taxes. We take 60% of $1,500, which gives us $900. We will add to that the $300 for taxes and insurance. This means you will be paying $1,200 per month on your mortgage payment, instead of $1,800 per month on your mortgage payment.

This payment of $1200 will start on the month following the month that your bankruptcy was filed. So, if your case was filed in February, starting in March you pay the mortgage company $1,200. This will continue for a period of approximately 3 to 6 months until the loan modification procedure has either been approved or not approved by the bankruptcy court.

Even if the loan modification is not approved as part of the case, there are still other ways to save your home as part of the Chapter 13 procedure, and we will go over those ways with you if your loan modification is not approved.

The bottom line is that most people have an excellent opportunity to reduce their mortgage payments as part of their Chapter 13 case. We want to help you reduce your payments to something realistic and affordable for you, so that you can keep your home and not worry about the arrears. Many times your arrears can be added to the back end of the mortgage loan.

We will be happy to discuss these issues with you in much greater detail, so feel free to ask us any questions that you may have.

Please also keep in mind that we help people reduce their mortgage payments even if they are not in bankruptcy. President Obama’s administration has helped create a loan modification procedure outside of bankruptcy, and we help many clients reduce their mortgage payments by lowering their interest rate or extending the term of their mortgage. Again, it usually doesn’t matter if you are way behind in your mortgage and subject to Sheriff’s Sale. Mortgage loan modification can still normally be considered and approved in appropriate cases. So, even if you don’t need to file bankruptcy, we could still probably help in obtaining a mortgage loan modification for you.