Interviewer: What chapter 13 does is it’ll put them back essentially to their payment that they were supposed to be making and then, it’ll take the past due and break it up and add a little bit piece on the each payment?
James Logan: Yes. Chapter 13 is basically a fresh start. What happens is as soon we file the case, that stops everybody and then you just start making your regular mortgage payment like nothing ever happened. We take everything that happened before we filed the case, all the payments that you missed, any property taxes that may have gotten behind, any income tax as you may owe, any credit cards, any car payments you’ve missed, everything that you fell behind on and we put that all into one pot.
The Past Due Payments are Consolidated and then Divided over a Course of 60 Months
We divide it up, basically divide it by 60 and pay it off a little bit each month every 60 months. You can do 3 to 5 year payment plans but since you’re paying everybody back at 0 per cent interest, it’s better to do it over a longer period and keep the payments lower. If you have more money, you can pay it off earlier but it’s basically a fresh start from that day forward. Everything that happened before you filed gets paid off through that plan.
In Situations where the Interest Rate on Mortgages is Low, It Does Make Sense to Hold on to a House
Interviewer: Do you recommend chapter 13 for people that have no equity or under water to settle for the payments?
James Logan: If you’re not so far behind and again, the rents have gone up tremendously in last few years. So, you look at it as my mortgage plus my plan payment, is that going to be more than rent? If it is, then maybe it doesn’t make sense to hold on to a house that’s under water. But if it’s going to be less, which a lot of people are because a lot of people bought houses in last few years and their interest rate’s been so low, it does make sense to hold onto the house. The mortgage payment plus the trustee payment would be less than you’re paying in rent. So, even if you’re under water, it would still make sense to hold on to the house.
A Judge Cannot Modify the Loan or Reduce the Interest Rates as Part of Bankruptcy
Interviewer: Can the judge plan down the amount owed on the loan or reduce the interest rate or modify the loan for you as part of the bankruptcy?
James Logan: In 2008, when Obama was running for president, he promised that he would modify the bankruptcy laws to allow bankruptcy courts to cram down or modify mortgages. Unfortunately, the banking industry was able to block that back in 2009 when it got to the Senate and so that never became a law. Unfortunately, we can’t reduce the payments in a chapter 13 or modify the first mortgage loan on your house. We can do strip-off second mortgages, so if you’re under water on the house, we can get rid of a second mortgage on a house. That’ll save people a lot of money if you have a 2nd mortgage, we can get rid of that in chapter 13.
If A Loan is Completely Unsecured , then the Second Mortgages Can be Gotten Rid Of
Interviewer: How do you do that?
James Logan: In the Chapter 13, if the loan is completely unsecured, meaning you owe more in the first mortgage than the house is worth, we can get rid of second mortgages, judgments and things like that against the house. For example, if you owe $100,000 on a house and it’s worth $90,000, we can get rid of a second mortgage and save you a lot of money that way. If the house is worth $120,000, we wouldn’t be able to do that. In today’s world, a lot of people are under water and we strip-off the second mortgage and when you complete your plan, all you have left is a first mortgage on the house, so that can be a great savings for people.