Why We Need to Be Able to Modify Mortgages in Chapter 13

18 Aug Why We Need to Be Able to Modify Mortgages in Chapter 13

You cannot currently get a meaningful mortgage modification in Chapter 13. Rarely can you get a meaningful mortgage modification by working with the mortgage companies. But many thousands of additional homeowners will be losing their homes unless something changes. This includes the married couple who came to see me yesterday.
The husband (about 60 years old) was getting unemployment and was about to go back to work in April when he suffered a stroke. Because he was unable to go back to work, he could no longer get unemployment. He applied for SSD and is still waiting to get any payments from that. The wife’s income is not sufficient to keep up with the two mortgages and their other bills. They couldn’t pay their first mortgage since April, and are now getting threats of foreclosure. They have tried working with the lenderand have been offered a temporary modification where they would have to increase their monthlypayments by $200 per month for three months and then their situation will be re-evaluated. Since their problem is that they cannot afford to pay their regular payments right now, the temporary mod does them no good.
They are going to try to convince the mortgage holder to allow them to pay reduced payments for a few months and then hope that the SSD will kick in. I’m not so optimistic. A Chapter 7 will not help them, nor would a chapter 13 right now, because they cannot afford their ongoing mortgage payments.
Thisis a classic example of why we need to allow meaningful modification of mortgages in Chapter 13. These homeowners have some equity in their home, but they pay a high interest rate. A Chapter 13 modification would allow them tolowering the interest rate andincreasing the term of the mortgage. In this case, their interest rate would go down by three or four percentage points, and their balance could be stretched over a term as long as 35 more years.That, coupled with beginning with no arrears would allow them to keep their home.
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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.
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