What has he got to lose by filing Chapter 13?

November 9, 2009 11:47 AM

Chap 13 filter: Asking for a friend. Some months ago he tried (unsuccessfully) to get a lower interest rate. I do not have any more details as he is very embarrassed to discuss. Should he file Chapter 13 to save his house?

He has not made a mortgage payment since Feb and his house will go on the auction block Dec 1. He has tried to negotiate with his leander and has just been told he is out of options.
He says to save his house he will need to file Chapter 13. Does anyone have any experience or advice on this? With the economy changing so drastically recently is this a good idea or not? What should he expect?

posted by shaarog to law & government (10 comments total)

Your friend should seek the counsel of a bankruptcy attorney.
posted by dfriedman at 12:01 PM on November 9, 2009

He says to save his house he will need to file Chapter 13.

This is not a question that can be answered here.
posted by jayder at 12:10 PM on November 9, 2009

Bankruptcy laws vary state to state. Depending on the law, bankruptcy may be an option that helps to save the house. Some states, like Texas, permit you to keep the house and your work tools in bankruptcy. Others permit you to protect X value of the house.

If the mortgage itself is the problem and your friend does not have other bills, this may not do much for him. If he has a ton of other debt, it might be the case that bankruptcy frees up money used to pay those bills and he can focus on the house, saving it.

But of course, IANAL, and I will nth the answers above. If nothing else, look for web sites that address your friend's specific situation.
posted by Xoebe at 12:15 PM on November 9, 2009

Bankruptcy laws vary state to state. No, they do not. Foreclosure laws do vary from state to state, and a bankruptcy filing will have an effect on a foreclosure proceeding/sale, which may have some variation from state to state, but the Bankruptcy law and proceeding will not. Bankruptcy is a federal proceeding and it's one Bankruptcy Code for the whole US. Have your friend go to the nearest federal courthouse and sign in at the helpdesk. This is the one in my district. No-one here can really answer this question.
posted by crush-onastick at 12:21 PM on November 9, 2009

I am not your lawyer.
I am not your lawyer.
I am not your lawyer.
I am not your lawyer.

The better question is, what has he got to GAIN by filing Chapter 13?

If he's just looking to drop the interest rate on his house, I would be very surprised if someone told him Chapter 13 is a way to do this.

He should also be very leery of any offers to help him modify his loan - a large percentage of those operations are outright scams, and many of the rest of them are ineffective. Banks just aren't willing to modify loans for most people right now. The one thing he can and should do is talk to a HUD certified counselor who can help him sort the good advice from the bad. Here's a good place to start: http://makinghomeaffordable.gov/

There's a lot of snake oil out there - tell your friend to be careful.
posted by mikewas at 12:31 PM on November 9, 2009

The only advice I can give beyond "seek proper legal help" is rather crude, but something he really, really needs to do:

Get your ass moving.

No payments since February, and he's only now contemplating steps like this, 9 months later and 3 weeks before his home is *sold*.
posted by Rendus at 1:02 PM on November 9, 2009

Bankruptcy law is federal law (and so is uniform across the states) but makes many references to relevant state laws. One very important such reference is the various exemptions that are available, which vary widely across states.

Tell your friend to be very careful, and try to dispel the notion (if this is indeed what he thinks) that Chapter 13 will save his house. It might or might not, but at any rate is going to be a hard row to hoe. Most 13s fail (or so I'm told) -- meaning that the debtor can't stick to the "plan" he agreed to after filing -- and end up in a liquidation anyhow. Also, residential lenders get what might be called preferential treatment in a Chapter 13, in that while most debts can be restructured (lower interest rates, etc.) a chapter 13 plan cannot modify a debt secured only by the debtor's principal residence. If he's got huge credit card bills in addition to the mortgage, then it's possible he could get enough breathing room in a 13 to keep paying the mortgage.

In short, be careful and take mikewas' advice above: try to find someone reputable to talk to, and beware of magic potions and snake oil.
posted by lex mercatoria at 1:18 PM on November 9, 2009

Each state has different bankruptcy exemptions, which he needs to consult with a local attorney about.

That being said, if he has no plan on how to pay back the arrearages, then bankruptcy will only delay the inevitable. Does he have cash flow he can use to pay the mortgage arrearage with? If not, then he may want to pack up his stuff and start looking for alternate accommodations.
posted by reenum at 1:20 PM on November 9, 2009

Many bankruptcy lawyers will give a free initial consultation (for obvious reasons). That might be the best way to go.
posted by kathrineg at 2:16 PM on November 9, 2009

As someone who has been in this position, and is not a lawyer, I give this advice:

My reading of your question is that your friend tried to get a lower interest rate because he either has an adjustable rate mortgage (ARM) or got a mortgage for a fixed interest interest rate that he cannot afford. If this is the case, filing a chapter 13 will not save his house. All it will do is allow him to come up with a plan to pay back the arrears--the 9 months of past-due payments and any escrow that might have come due--over a period of no less than 3 and no more than 5 years. This payment will be made on top of his current mortgage payment, and that payment must resume being paid immediately.

Your friend may also believe that filing chapter 13 will force his bank to come up with some other magic option to allow him to remain in his home or sell it via a short sale. This, too, is inaccurate in my experience. In fact, filing bankruptcy, which officially brings lawyers and a federal court into the picture, will pretty much shut down any negotiations. The bank is now bound by the orders of the court and cannot violate these without having the property removed from the bankruptcy proceedings or received permission from the court to do take an action. What happens if the property is removed? The bank may now do what it originally could do prior to the bankruptcy: negotiate or foreclose. All your friend would accomplish in this situation is to delay the foreclosure by the amount of time it takes the bank to see the bankruptcy filing and then make its own motion asking the court for permission to take action against the property and will likely increase the various fees the bank will demand to be paid before it halts the foreclosure.

Obviously, your friend must consult with a qualified bankruptcy attorney in his jurisdiction if he is seriously considering bankruptcy to discover the legally-correct answers to his specific situation. My experience is different from his. However, before filing bankruptcy, and especially if your friend has a government-backed loan (FHA, VA, Fannie Mae, Freddie Mac, etc), he should contact his local Department of Housing and Urban Development office to find out about their foreclosure mitigation programs. In fact, if your friend does have a government-backed loan, his bank should have already sent him notification of his options under those programs as well, so he should definitely look through the paperwork he is possibly ignoring and see what useful gems they contain. Three weeks is very, very short as far as property-related actions go, so he needs to start acting yesterday if he truly wants to keep his property.

To emphasize, I am not a lawyer and what I went through is almost certainly different from your friend, so all of the posts above mine are correct: Find a lawyer.
posted by fireoyster at 3:39 PM on November 9, 2009