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Chapter 13 Bankruptcy

The New Bankruptcy: Will It Work for You?

Selling Your House in a Tough Market

Foreclosure: Articles and FAQs

Guide to Avoiding Foreclosure (HUD)

Avoiding Foreclosure: State Resources (HUD)

Foreclosure Survival Guide

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Foreclosure Survival Guide (1st Edition)

Repayment Plan: Keeping Current and Catching Up

With a repayment plan, you arrange to make up missed payments over time and stay current on your ongoing payments. This approach is usually the most feasible and easiest to negotiate with your servicer. For it to work, your income will have to be able to cover both current and makeup payments.

For example, say you are four months behind on your payments of $2,000 a month, for a total of $8,000. Paying an extra $800 a month over the next 11 months would bring you current. Why 11 months, when you could pay back the $8,000 in ten? The eleventh month would account for 10% interest you’d likely be charged on the arrears. The actual numbers might be a little different, but you get the idea.

If you could pay only $2,400 a month (the $2,000 payment plus $400 to make up the arrears), your plan would be for 20 months, plus additional time to pay the interest. You might even get your servicer (or lender) to sign off on an agreement that gives you three or four years to get current.

The longer it will take you to catch up, the likelier it is that your servicer will have to get permission from the lender. If the lender will have to sign off on your proposed plan, and you are running up against your foreclosure sale date, you should definitely ask—in writing—for an extension that the servicer thinks will be sufficient to either work out an arrangement or give you time to fight the foreclosure. Some servicers will tell you right up front whether a proposed plan will work or is off the table. Other servicers will string you along. You’ll just have to make sure that you aren’t forgoing other possible solutions (such as bankruptcy, a court action challenging the foreclosure, a statutory reinstatement, or redemption of the mortgage), just because the servicer tells you the solution is “in the pipeline.”

Don’t Forget: Statutory Reinstatement or Redemption

Many states give you, by law, the right to reinstate your mortgage (make it current) or redeem the loan (refinance the entire loan). Your state’s page in the appendix lists the time limits for the exercise of these procedures if they’re available in your state. Typically, you must exercise them before the foreclosure sale date, although some states give you a period of time after the sales date to redeem the mortgage by paying it off in full (plus interest and costs).

If you think either of these options might work for you, pay attention to the deadlines. For example, if your state gives you only 30 days after you receive the notice of default to reinstate the mortgage, don’t let negotiations drag on past that date, unless reinstatement is clearly not in the cards.

If you do have the financial ability to reinstate the mortgage, you surely can work something out with the servicer in regard to your missed payments, given enough time. If you need a reduced monthly payment, as well as a means to make up missed payments, reinstatement won’t work; instead, you’ll need to redeem the mortgage by refinancing it at a lower interest rate.