Commonly Encountered Problems in NY Chapter 13

Commonly Encountered Problems in Chapter 13

Need to Make Current Mortgage Payments. A debtor filing Chapter 13 to deal with real estate problems, such as a pending foreclosure, needs to be able to make current mortgage payments as they become due and can seek to cure the arrears (i.e., past due part of the mortgage) over time through the Chapter 13 plan. If a debtor is unable to make current mortgage payments as they become due Chapter 13 bankruptcy may still be used as a means to try to prevent a foreclosure and obtain a sale of the debtor’s property (subject to Bankruptcy Court approval). This may be desirable when a debtor has equity in the property that would get wiped out in Chapter 7 bankruptcy and wants to maintain control of the sale process.

Inability to Restructure Home Loan through Bankruptcy. The Bankruptcy Code provides that the rights of a mortgage lender secured by real estate that is the debtor’s principal residence can’t be modified in Chapter 13. This means that we can’t use Chapter 13 to try to modify the loan and, for example, split it into two separate secured and unsecured loans that receive separate treatment. We can do this for investment properties or other properties owned by the debtor that are not the debtor’s principal residence. We can also use Chapter 11 to do this for the debtor’s principal residence. However, unfortunately, the expense and complexity of Chapter 11 puts it beyond the reach of most consumer debtors.