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Some residential mortgages can be modified in chapter 13

by David Leibowitz, Illinois and Wisconsin Bankruptcy Attorney · Posted in *Chapter 13 Bankruptcy, Bankruptcy Practice and Procedure, Benefits of Bankruptcy

We know that Congress squelched the proposal that mortgages on your home could be modified in chapter 13. Too bad. Mortgage foreclosures went ahead at the highest pace in recent history as a result. Mortgage modifications are as rare as hen’s teeth.

Some mortgages, however, can be modified.

The key is that mortgages on your home can be modified when the mortgage is not the only security given for the loan.

For example, a client gave the bank a mortgage on their home to further secure a loan on their business, a liquor store. The liquor store failed.

Normally, you can’t eliminate a mortgage on your home except in chapter 13 and then only if the lien is totally unsecured – meaning your house is worth less than the mortgages which come ahead of the lien you want to eliminate.

However, in the case of the bank’s lien which was also given to secure the debt on the liquor store and its assets, it doesn’t matter if the mortgage is fully secured, partially secured or undersecured.  The mortgage can be modified. It can be broken into two parts. The secured part can be paid over a period of 5 years at a reduced interest rate.  The unsecured part can be lumped in with all other unsecured debts and is paid to the extent that it can be from the debtor’s projected disposable income over 5 years under a chapter 13 plan – with no interest.

Some creative lawyers are now arguing that residential mortgage loans further secured by a tax escrow can be modified in chapter 13 just like the mortgage further securing the liquor store loan. Whether that will be allowed remains to be seen.

Rely on creative attorneys on the Bankruptcy Law Network to help you solve your financial problems.

Tagged as: Modifying mortgages in chapter 13

About David Leibowitz, Illinois and Wisconsin Bankruptcy Attorney

David Leibowitz holds a B. A. in Economics from Northwestern University and received his J.D., cum laude, from Loyola University of Chicago School of Law where he also served as Note Editor of the law review. Admitted to the Illinois and Wisconsin bars, he is the managing member of Lakelaw, an interstate law firm with offices in Chicago, Skokie and Waukegan in Illinois and Kenosha, Wisconsin. He is nationally recognized for his work in identifying and pursuing mortgage related claims in the context of bankruptcy. David is a member of both the Illinois and Wisconsin bars and has practiced in bankruptcy courts throughout the country. He is a member of the American Bankruptcy Institute where he is the Co-Chair of the Commercial Fraud Committee. He is ta frequent contributor to the ABI Journal and speaker at ABI events. He is an author and editor in chief of the American Bankruptcy Institute Fraud Manual published in 2010. He is also a member and Director of the National Association of Bankruptcy Trustees, a member and frequent speaker for the National Association of Consumer Bankruptcy Attorneys and numerous state and local bar associations. He is Board Certified by the American Board of Certification in both Consumer Bankruptcy Law and Business Bankruptcy Law. David is also the publisher of Lakeblawg, www.lakelaw.com/lakeblawg, a blog dedicated to consumer and small business bankruptcy and mortgage foreclosure defense.

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