Can Chapter 13 Bankruptcy Help with an Underwater Mortgage?

suburban residential home

Struggling to meet your mortgage payments each month can be stressful. If you find yourself in this situation, it may be worth considering a bankruptcy filing. Follow along to find out whether a Chapter 13 bankruptcy filing can help with your underwater mortgage and how a proficient Rockland County Chapter 13 bankruptcy attorney at The Law Offices of Allen A. Kolber, Esq. can help you make this assessment.

What is a Chapter 13 bankruptcy?

Usually, Chapter 13 bankruptcy for is individuals and families that have assets, earnings, or a home value that is above the average for the county in which they reside. This type of bankruptcy may allow you to keep all your assets protected by the Bankruptcy Court. In exchange, you may be required to submit a plan as to how you will restructure your debt and repay it in the next three to five years. Notably, your mortgage payments may be a part of this repayment plan.

What is an underwater mortgage?

More often than not, individuals who purchase a home with a mortgage have an “above water” mortgage. Meaning, when an individual decides to sell their home, they will end up with enough equity to cover all the costs of selling and paying off their associated debts.

However, sometimes there are cases in which individuals have “underwater” mortgages. Meaning, when they sell their home, there is not enough equity or money left over to cover all the costs of selling and paying off their associated debts. You may suffer from an underwater mortgage for any of the following reasons:

  • You purchased your home at an asking price that was too high, and now you owe more than it is worth.
  • You suffered through a financial hardship that caused you to fall behind on your mortgage payments, and now your home lost equity.
  • You had to take out additional loans against your property.

Can a Chapter 13 bankruptcy filing help with my underwater mortgage?

If you find yourself with an underwater mortgage, the bright side is that you may be able to repair this via a Chapter 13 bankruptcy filing. This is because, with the repayment plan that comes with Chapter 13 bankruptcy, you may be able to pay off your mortgage debts at a pace that works better for your current financial situation. And by successfully paying off your mortgage, you may regain the equity in your home.

In addition, Chapter 13 bankruptcy may help with your underwater mortgage if you have a second loan on your home. This is because this will be considered an unsecured debt that you will no longer have to keep up with each month, allowing you to focus on paying off your first mortgage.

For more information on this, contact a talented Rockland County Chapter 13 bankruptcy attorney today.