The Cassidy Law Firm Blog

Tuesday, May 6, 2014

Monmouth County Chapter 13 Bankruptcy: Can It Be Used to Refinance a Mortgage?

In recent years the number of people filing for bankruptcy in the United States has reached historic proportions. The overall economic crisis in the U.S. has largely been to blame for the record number of debtors seeking protection from creditors through bankruptcy. For many debtors, the single largest bill they face each month is their mortgage payment. If the mortgage was taken out when interest rates were high, the monthly payment can be a significant source of strain on the budget each month. In some cases, bankruptcy can result in a lower monthly mortgage payment by re-financing the mortgage during or after the bankruptcy.

In Monmouth County, individual and married debtors typically use either chapter 7 or chapter 13 when filing bankruptcy. Chapter 7 can only be used by a debtor who passes the “means test”. In essence, this means that a debtor’s income must be at or below the median for the area. In addition, a chapter 7 should not be used when the debtor has valuable non-exempt assets to protect. In that case, a chapter 13 is the better option because assets are not at risk of being sold to pay off creditors because the debtor pays off most debts over an extended period of time.

If you own a home and are making monthly mortgage payments you will continue to make those payments as part of your repayment plan in a Monmouth County chapter 13 bankruptcy, assuming you wish to keep the home. In some cases, a loan modification can even be approved during a chapter 13 bankruptcy. It is important to understand that there is no guarantee that you will be able to modify the terms of your loan in a chapter 13 bankruptcy; however, it is possible.

In addition to re-financing or modifying your primary mortgage in a chapter 13 bankruptcy you may be able to discharge, or “strip” a second mortgage entirely. As a general rule, all secured debts must be paid as part of the repayment plan in a chapter 13 bankruptcy. When you took out your second mortgage you had enough equity in your home for the property to serve as security for the loan; however, if, as a result of the recent real estate market crash, your home is now worth significantly less than it was when you took out the second mortgage that debt may no longer be a secured debt. Therefore, it may be eligible for discharge in a chapter 13 bankruptcy.

If you are considering bankruptcy and have specific questions about how your mortgage will be treated in the bankruptcy, contact The Cassidy Law Firm for a free consultation with an experience Monmouth County chapter 13 bankruptcy attorney.

To learn more, please download our free Your Home and Mortgage in Monmouth County Bankruptcy here.


*We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

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