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Scura, Wigfield, Heyer, Stevens & Cammarota Blog

Determining Whether to Pursue a Loan Modification or Cure and Maintain Chapter 13 Plan

[fa icon="clock-o"] December 23, 2019 [fa icon="user"] David E. Sklar

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When an individual is contemplating the best strategy to keep their residence through a chapter 13 bankruptcy plan, a key consideration is generally whether to pursue a loan modification or a cure and maintain bankruptcy plan. This blog will explore that decision and key considerations in making that decision.

LOAN MODIFICATION THROUGH A CHAPTER 13 BANKRUPTCY

In a chapter 13 bankruptcy, you can enter the Court’s loss mitigation program in which you will be seeking a loan modification from your mortgage lender. The Court cannot force a mortgage lender to give a loan modification. However, the Court’s loss mitigation program puts the process under court supervision and forces the lender to deal in good faith. During this process, you will either need to make your regular monthly mortgage payment or a reduced adequate protection payment. The adequate protection payment consists of 2/3 of your principal and interest payment with 100% of your monthly property taxes and insurance. As part of this process, you will need to supply various documents evidencing your financial condition which aids the lender in deciding whether to offer a loan modification.

WHAT IS A CURE AND MAINTAIN BANKRUPTCY PLAN?

A cure and maintain bankruptcy plan to treat the arrears on your mortgage means that you will be maintaining the ongoing mortgage payments while also curing the arrears on your mortgage through your chapter 13 plan. One of the advantages to a cure and maintain plan is that it does not depend on the lender’s approval. The maximum plan period for a chapter 13 plan is sixty months. Therefore, depending on the extent of your arrears, it can be very costly to try to cure your arrears through a chapter 13 plan. When considering whether to pursue a cure and maintain plan, it is essential that you frankly consider whether you can afford to cure your arrears while also paying your ongoing mortgage payments over a five-year period.

            You can pursue a cure and maintain plan if you do not obtain a loan modification; however, this will cause you to have a shorter period to cure your arrears. The maximum plan period for a chapter 13 plan is sixty months. Furthermore, if you are paying a reduced adequate protection payment, then the arrears owed to your lender will be greater than when you filed the case.

WHICH OPTION IS BEST FOR ME?

Bankruptcy is not a one-size fits all remedy, since every person’s situation is different. Therefore, it is essential that you have a frank conversation with your attorney at the outset of your case, so they can help guide you to the best decision given your individual situation. Key considerations as to which avenue is best for you will include: How much are your arrears on your mortgage? Was your mortgage loan previously modified? What is your interest rate? Has your income recently increased? Can you afford to cure the arrears on your mortgage in addition to paying your ongoing mortgage payment every month?

If you are considering filing for bankruptcy, it is important to contact an experienced bankruptcy attorney to guide you through your options. It is also important to inform your counsel about every aspect of the potential litigation, so your attorney can guide you through the process as smoothly as possible. For questions regarding a potential litigation, call the law firm of Scura, Wigfield, Heyer, Stevens & Cammarota, LLP for a free consultation.

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