This case study is about someone who is behind on his first mortgage, and wants to determine what the best plan of attack could be with regard to the home. The homeowner has a first mortgage and a second mortgage. There is no equity in the home. He has not made a second mortgage payment in several years as that is an interest only loan. The first mortgage he was able to pay for many years however has fallen behind by five months. The lender has offered a trial modification period of three months with a mortgage payment that is not acceptible to the homeowner. He is in my office to determine what if anything he can do to initially save the home.
By going through an income and expense analysis, I determined that chapter 13 was not going to be a viable option for the debtor. The first mortgage loan was more than he could afford at the current rate. Under chapter 13, he would have to make the regular mortgage payment, the regular second mortgage payment and put something towards the arrearage over a three to five-year period. I then explored the chapter 7 option. The debtor is married and his income and expenses equate. Thus, he would be able to qualify for a chapter 7 fresh start which would eliminate the first mortgage, the second mortgage and about $30,000 worth of miscellaneous credit card debt. The debtor would also be able to continue to live in the property until a foreclosure case concludes.
Based upon the above, I recommended a chapter 7 fresh start bankruptcy coupled with a foreclosure defense in the future. I estimated that the homeowner would have approximately 2 and half to three years remaining in the property as of today’s date. The chapter 7 would delay the foreclosure filing for several months. Once the foreclosure filing occurs, the homeowner could defend the foreclosure for several years. I believe the best solution for this debtor based upon all of the facts that I saw would be a chapter 7 to eliminate the debt and then a foreclosure defense to stop the foreclosure for as long as possible. It is also possible that the lender will offer a more favorable modification offer while he is in foreclosure. His ultimate goal would be to save the home if possible. However, he understands that if he does not get a reasonable modification offer and one that he can readily afford, he will be prepared to vacate the property several years down the road.
This case study was a little more complex than others in that it involved chapter 7, chapter 13 and foreclosure defense analysis. The debtor left the office with a ton of information, and a lot to think about as he explores what his best option is. I strongly recommended a chapter 7 followed by a foreclosure defense to give him the best chance of relief and the best timeframe to live in the property.
