Debtors seem to whip out their pistols and shoot themselves in the foot with increasing regularity.
Just when their goal of keeping the house was within reach, had they paid attention, they lose it all.
It happens when debtors don’t hold up their end of the bankruptcy bargain.
And at the end of the day, or the end of the plan, they get none of the benefits they sought through bankruptcy.
How does that happen?
Chapter 13 saves houses
The overwhelming majority of Chapter 13 cases in the Bay Area are filed to save a house.
The homeowner needs to catch up on payments, or more frequently, needs a loan modification in order to keep the house.
The Bay Area bankruptcy judges have developed procedures to confirm Chapter 13 plans, and get money flowing out to creditors, while a loan modification is under consideration. If there is anything we know about loan modifications, it’s that they take time and persistence.
One of the provisions of the Chapter 13 plan that the debtor proposes for confirmation by the court addresses how the mortgage lender will be paid while we wait on a loan modification.
The plan might provide that the debtor will make the regular payment, according to the loan terms, directly to the lender in the meantime.
Or, the debtor may propose to make an ongoing payment to the mortgage lender calculated according the the HAMP formula, which says that housing costs should be no more than 31% of a person’s gross income.
So, the HAMP payment to the lender works out to be 31% of monthly income, less property taxes and hazard insurance.
Whichever approach the debtor chooses to deal with the current mortgage payment, it’s set out in the plan, along with the monthly payment the debtor will make to the trustee toward other kinds of debts.
Once a plan is confirmed by the judge, it binds all parties, creditors, trustee and the debtor. See §1327.
Only some debtors seem to forget their part of this deal. They don’t make the ongoing payments and don’t modify their plans to match their behavior. [Read more…]