Bankruptcy, Chapter 13 Bankruptcy especially, is routinely used to save a house from foreclosure. It boils down to a two step process: (1) stay the foreclosure with the filing of the bankruptcy case and (2) catch up the past-due amount over 3 to 5 years.
Cure and Maintain
For long-term debts, where payments would still be due after the 3 to 5 years of a chapter 13 bankruptcy, section 1322(b)(5) offers debtors the option to cure any default, i.e. pay back a past due balance, and maintain the regular monthly payment. This is an exception to the general rule that secured creditors' claims are paid off by the chapter 13 plan, and is most commonly used for mortgage type debts.
Frequently Asked Questions
Our frequently asked questions also address Cure and Maintain:
No, a bank doesn't have discretion on whether or not a loan is involved in a chapter 13 bankruptcy.
We have discussed Cure and Maintain in the following posts on our bankruptcy blog:
One common use of chapter 13 bankruptcy is prevent foreclosure of a home. Chapter 13 allows the owner/borrower to bring the loan current over a period of years and keep his or her house. When does one invoke the power of chapter 13 to prevent foreclosure?
A significant power of chapter 13 bankruptcy is the ability to propose a plan that cures a default associated with a long-term debt, i.e. to catch up a delinquent mortgage so that it is once again current. Due to this, chapter 13 is an option frequently considered by families who have fallen behind on their home mortgage payments. Understanding the basics of how a cure payment is calculated is important for appreciating the value and constraints of chapter 13.
Student loans are a significant category of debt for many consumers. This is particularly true in the Raleigh-Durham area, home of numerous leading universities. With outrageous educational price inflation over the last decade and continued weak job markets, many former students are left with student loan balances far exceeding their ability to repay. Unlike almost every other consumer debt, bankruptcy is seldom effective at getting rid of student loan debt. Instead, for borrowers of federally backed student loans, an alternative repayment plan is often the best option.
The house payment is the single largest expense for many families. When finances get tight and bills start adding up, many people get behind on their mortgage payment. In North Carolina, recent statistics put about 3-4% of home mortgage loans at least 90 days past due. In this post, I briefly summarize the major options for a homeowner who is behind on their payments, including bankruptcy approaches.
For many, bankruptcy first comes to mind as solution utilized by a person recently unemployed. Indeed, many people do file bankruptcy after experiencing a job loss, and there are certainly many cases where bankruptcy debt relief can be very helpful when household income has declined. So why would someone file bankruptcy after income has increased?