There is an ongoing problem with a record number of foreclosures taking place this year throughout the New York metropolitan area. Many people in New York, Queens, Bronx, Brooklyn, and Westchester County are facing the prospect of losing their homes in foreclosure and are exploring their options. For many of them bankruptcy may be their best option. In a prior post New York Foreclosure & Chapter 7 Bankruptcy I discussed when and how chapter 7 can be used to deal with foreclosure in New York. Today we focus on chapter 13.
NY Foreclosure & Chapter 13 Bankruptcy
In chapter 13 the debtor keeps his/her property. The trustee does not sell it to pay creditors. Instead, creditors’ claims are dealt with over time. A debtor filing chapter 13 to deal with real estate problems, such as a pending foreclosure, needs to be able to make current mortgage payments as they become due and can seek to cure the arrears (i.e., past due part of the mortgage) over time through the chapter 13 plan. If a debtor is unable to make current mortgage payments as they become due chapter 13 bankruptcy may still be used as a means to try to prevent a foreclosure and obtain a voluntary sale of the debtor’s property (subject to Bankruptcy Court approval). This may be desirable when a debtor has equity in the property that would get wiped out in chapter 7 bankruptcy and wants to maintain control of the sale process.
In chapter 13 bankruptcy the debtor has the ability to cure arrears (past due portion) of the mortgage over time through a chapter 13 plan — even if there is a foreclosure judgment as long as sale has not yet occurred. You can file chapter 13 and still try to pursue a settlement/workout/loss mitigation program with the lender at the same time, but most lenders will require that you dismiss your bankruptcy case before they will finalize any deal.
To be eligible for chapter 13 a debtor can’t have secured debt (such as mortgages, judgment liens, or tax liens) greater than $1,010,650 total, or unsecured debt greater than $336,900 total (such as credit card debt, student loans, medical bills, etc.).