Written by attorney John Mark Wilk

Chapter 13 Bankruptcy and Strategic Defaults

Many homeowners may want to discuss a modification with their mortgage company, but many are finding that if they are current on their mortgage payments, the mortgage company will not even entertain the idea of a modification. Many mortgage companies have directly told the homeowner that they must be 3 to 4 months behind on your mortgage before they will consider some type of modification.

Even if the mortgage companies intimate that they would consider a modification at that time – they will not typically provide information as to what they would modify.

  • Will the mortgage company lower the payment?
  • How much would they lower the payment?
  • Will they just allow the homeowner to make partial payments for a while?
  • What happens after the partial payments?
  • Will they lower the interest rate?
  • What would the new interest rate be?

Becoming late on your mortgage, even for a short time will have an adverse impact on your credit. Under the new Home Affordable Modification Program (HAMP) guidelines (Supplemental Directive 10-02, effective June 1, 2010), lenders are required to consider borrowers in active bankruptcies for HAMP modifications. Under a Chapter 13 reorganization, you do not need to get behind on your payments to get your lenders attention. If you have determined that you only want to keep you home if are able to secure a loan modification, a Chapter 13 reorganization is a plan to consider. Through the program we can:

  • Work with your mortgage company to secure a modification. Under HAMP guidelines, they are required to consider our request.
  • Because the Chapter 13 is designed to reduce and eliminate debt, the program may enhance your qualifying ratios (debt-to-income, etc.)
  • You will have full court protection from your mortgage company from foreclosure (Link to “Home Foreclosure and Michigan Foreclosure Law" page) if you have already gotten behind. Through the Chapter 13 program, we are able to legally stop a foreclosure sale and terminate continued late charges and interest on your missed payments.
  • Because the Chapter 13 program is designed to prioritize secured creditors (mortgage, vehicles, etc), we may to able to provide budget relief just by reorganizing and reducing other bills such as credit cards, medical bills, etc.
  • If you have a secondary mortgage or home equity loan and the value does not support the loan we can legally remove it. This rebalances your home value relative to current market conditions.
  • The Chapter 13 reorganization is designed to help you improve your credit over the course of the program. Each month you are paying down principal debt and each month you are providing timely payments to your creditors. These factors alone influence 65% of your credit score according to FICO.

Johnson and Wilk, PLLC offers free consultations to discuss your financial future and options for modifying your mortgage and reorganizing your debts.

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