Chapter 13 is widely used to stop a home mortgage foreclosure and propose a Chapter 13 plan to reinstate one's home mortgage. This involves catching one's mortgage up-to-date over a period of up to five years while maintaining further monthly payments. Chapter 13 is also widely used to avoid an "unsecured" second or other junior mortgage if there is no equity to support the second or junior mortgage.
What can be done for the many homeowners in South Florida whose home values have fallen vastly below the amounts due on their first mortgage? For example, if the value of the home has fallen to $200,000.00 and $300,000.00 is owed on the mortgage. Generally, one is not allowed to force a mortgage company to modify one's mortgage on his principal residence. This means, one cannot force the mortgage company to reduce the amount owed, lower the interest rate, or stretch out the term of the mortgage on one's principal residence.
Due to the continuing deterioration of the mortgage foreclosure situation in South Florida, it appears that section 1325 (a)(5) of the Bankruptcy Code may be a provision whose time has come. Section 1325 (a)(5) provides that a Chapter 13 plan should be approved by the Bankruptcy Court if the holder of a secured claim, such as a home mortgage, has accepted the Chapter 13 plan. That is, Chapter 13 of the Bankruptcy Code contemplates approval of a Chapter 13 plan if the mortgage company accepts the Chapter 13 plan even if the Chapter 13 plan proposes to modify a home mortgage.
In normal times, it would be beyond contemplation that a mortgage company would voluntarily accept the modification of a home mortgage. But these are not normal times in South Florida and in many parts of the United States. In fact, public policy and indeed economic self-interest seems to be growing that a mortgage company should accept and even seek the modification of a home mortgage. The serious campaign begun a few weeks ago by the FDIC as the receiver of Indymac is one example of this policy being put into effect in earnest.
It would seem that in today's economy, the use of Chapter 13 should be considered to seek a mortgage companies acceptance of the modification of a home mortgage as proposed under a Chapter 13 plan. While the Bankruptcy Court may not be able to force a mortgage company to modify a secured mortgage on one's principal residence, section 1325 (a)(5) would appear to indicate that one is at least able to request the mortgage company to voluntarily modify one's mortgage.
In fact, one of the largest complaints of homeowners is that they are is unable to reach anyone at the mortgage company and that they only get the runaround when they attempt to reach a mortgage company to attempt to workout or modify their home mortgage. It is widely reported that many mortgage companies appear to be overwhelmed, understaffed, and unable to handle the volume of telephone calls. The benefit of Chapter 13 is that once the bankruptcy case is filed, the mortgage company retains a bankruptcy attorney who the Chapter 13 debtor is at least able to communicate with and request a voluntary mortgage modification.
