Can Chapter 13 bankruptcy help with missed mortgage payments?

On Behalf of | Feb 18, 2024 | Chapter 13 Bankruptcy

Staying compliant with a mortgage is crucial for the protection of a primary residence, which typically serves as the collateral for the loan used to pay for it. The terms of a mortgage include an obligation to make regular payments. Standard 30-year mortgages require 360 payments before someone fully owns their home.

If someone fails to make payments on time, their ownership interest in the property could eventually be at risk. A Chapter 13 bankruptcy filing is one of the more effective solutions for those worried about protecting real property during times of financial hardship. Some people who recognize that they may need help protecting the home where they live are uncertain about when they might need to file.

At what point is someone at risk of losing their home to foreclosure?

Four missed payments are often the threshold

Mortgages differ from state to state and even between financial institutions. However, there are strong legal protections in place to help prevent a scenario where someone could lose their primary residence. Typically, a mortgage attached to someone’s home is only eligible for foreclosure after someone misses four payments. Lenders have to provide advanced notice to property owners who have fallen behind on their payments.

Even one payment can be too many

While someone theoretically has four payments to catch up financially before foreclosure is a major concern, they may need to take action sooner. The reason is that their lender likely expects them to fully catch up on missed payments to bring the account into good standing. They may need to come up with thousands of dollars depending on how many payments they have missed. That obligation can make even one missed payment a source of financial stress. Chapter 13 bankruptcy can help by deferring aggressive collection activity.

Lenders may also have more of an incentive in Chapter 13 proceedings to work with someone to renegotiate certain aspects of their mortgage debt. In some cases, borrowers can arrange to move the missed payments to the end of the mortgage instead of needing to cover them immediately. While people may not need the automatic stay of a Chapter 13 bankruptcy immediately, they may benefit from bankruptcy after as little as one missed mortgage payment.

Learning more about the rules for mortgages and bankruptcy may benefit those weighing their options during times of financial strain.