Tag Archives: Chapter 13 plan

Can Bankruptcy Help You Get a Loan Modification?

Investment Real Estate

Distressed homeowners in the Northern District of Florida now have an additional option to try and keep their home.

The court’s Mortgage Modification Mediation service allows homeowners, and lenders, access to experienced Chapter 13 mediators at a reduced cost. Although the parties are not required to reach an agreement, courts are generally much more inclined to enforce agreements between the parties as opposed to imposing their will in a given situation.

The plan is designed to streamline the process, reduce time and, above all, get the parties talking.

Mediation success

The normal loan modification process can be frustrating, to say the least. By most accounts, at least 80% of eligible homeowners are denied mortgage modifications by their lenders. Although there are no hard numbers, and no guarantee of success, these statistics are often reversed in mediation.

There are two primary reasons for the big difference in results:

  • Dialogue: Only about a third of at-risk borrowers are even in regular contact with their lenders. Although an open dialogue is no guarantee of success, a nonexistent dialogue is a guarantee of failure. You don’t get anything unless you ask.
  • Good faith negotiation: The largest single reason for denial is failure to timely submit all required documents. While a bank may very well deny a loan modification because one form was one day late, such a stance is not a “good faith” denial under the law. The rule of thumb is that if the bank cannot issue a denial based on anything other than a technicality, there is no good-faith basis for the denial.

Mediation may be available in other cases and in other districts. Speak with your attorney about some ways that bankruptcy can save your home.

Your Bankruptcy Roadmap


The Chapter 13 plan essentially puts you on an allowance for a period of time, to help you catch up on your bills, start rebuilding your credit score and get on with your life free of creditor harassment.

The plan

A Chapter 13 bankruptcy is sometimes referred to as the “wage-earner plan” or “repayment plan bankruptcy.”

Just like your petition was voluntary, you also have the first chance to put together a Chapter 13 plan. Depending on your income, the plan period may be either three or five years; generally speaking, a higher income means a longer plan, because the law assumes that you have more ability to pay back your debts.

At a minimum, the plan must account for current payments on secured debts, the total arrearage on secured debts and the trustee’s fee. Bear in mind that the “total arrearage” is not necessarily the amount the moneylender demands that you pay.

The plan must also be feasible. If you are behind on your mortgage, you must demonstrate the ability to pay off the entire amount within the plan period. It is possible to go back and modify the plan later, should your income or expenses change significantly.

Automatic stay

Creditors are prohibited from contacting you for the entire time that your bankruptcy is pending. As a practical matter, moneylenders often communicate to your attorney, who then forwards the information to you. While cumbersome, this process gives your attorney the opportunity to negotiate with moneylenders right from the start. It also gives you the freedom to check your mail without that sinking feeling that there will be more bills in the box than you can possibly pay.

A bankruptcy plan is a fairly complicated document that can put you back on the right path. To take the first step towards financial freedom, contact our office located in Melbourne, Florida.

Are HELOCS Dischargeable in Bankruptcy?

Home equity is exempt in Florida, although the amount of the exemption may be a matter of time. If you have a Home Equity Line of Credit, the actual debt may be wiped out but not the lien on your property

What is a HELOC?

Many people refer to a HELOC as a “home equity loan.” But, strictly speaking, a HELOC is not a loan. A HELOC is more like a secured credit card: the bank agrees to extend a predetermined line of credit and, if you default on the payments, the bank may foreclose on the lien you gave the bank.

Chapter 7 Bankruptcy

A Chapter 7 Bankruptcy discharges the debt, but does not erase the lien. So, you have no personal liability to repay the note, but the bank can take your house if you default on the payments.

What’s the difference? Assume there is a deficiency, because you are underwater (your mortgage balance exceeds the fair market value of your home). Because the bankruptcy discharged the underlying debt, the bank may not sue you for the deficient amount.

Chapter 13 Bankruptcy

You may not have to repay the entire HELOC balance in a Chapter 13. If you are underwater on the mortgage, the court may allow you to strip-off all or part of the amount.

If you must repay the entire amount, which is likely, you can set the payments yourself in the Chapter 13 plan. As long as the trustee finds that the plan is reasonable, you can pay back the HELOC in equal monthly installments through the plan period, as opposed to the lump-sum payment that the moneylender is probably demanding.

For more information about what debts are dischargeable in bankruptcy, contact us for your free consultation.

Contact Us For A Free Consultation