Interviewer: Does a bankruptcy discharge eliminate personal liability on all debts?
James Logan: If you get a bankruptcy discharge, it eliminates personal liability on all your debts. That’s a point of bankruptcy discharge. So, even if you have a judgment against you, they still lien on your house and they can never come after you personally for it anymore if you get a discharge.
A Judge Cannot Even Modify the Mortgage Payment in a Bankruptcy
Interviewer: So, the judge doesn’t have a power to change the interest rate which is, to change the terms of repayment, right?
James Logan: Unfortunately, they can’t even modify the mortgage payment in a chapter 13 or in chapter 7. The only thing that chapter 13 can do is basically allow you to start making your regular mortgage payment after the case is filed, just like nothing ever happened. All the payments that you missed before, we can file a case, that’s what goes into the chapter 13 payment plan. For example, if your payment was $1,000 a month and you’re 10 months behind, we’d file a case and you start making the $1,000 a month payment after the case is filed and then, we spread the $10,000 over the 60 months of the plan, so it’ll be roughly $160 a month.
The Interest Rates Provided to People in Loan Modifications are Quite Good
Interviewer: Do banks willingly change the interest rate of loan modification as part of the bankruptcy or no?
James Logan: The interest rates that people get in loan modifications are generally quite good, 2, 3, 4, 5 per cent that I’ve seen in the loan modification. Bbut unfortunately, there is nothing you can do to force them to modify the loan. We do file cases where people have got loan modifications after the bankruptcy is filed. Sometimes, we’ll file a chapter 7 where the people are behind so far, $100,000 behind of the mortgage. We’ll file a chapter 7 to stop the foreclosure and they are able to work out a loan modification after the case is filed. Sometimes, it seems like you go a different department at the bank after the bankruptcy is filed and they’re successful in getting a loan mod where they weren’t before the case is filed. Some banks look at it as you’ve wiped out all the other debts and maybe it’s time to give these people loan modification to try to see if they can hold on to the house.
Common Misconceptions Regarding Bankruptcy In Relation to Foreclosure
Interviewer: Any other misconception they have or things they’re being told that are wrong?
James Logan: The biggest misconception in chapter 13 and chapter 7 is that people are going to lose everything. In chapter 13, it doesn’t matter what you own, you’re going to keep everything because all you’re doing is re-organizing. You’re paying off everybody you owe. The amount that you have to pay depends on several different factors but the bottom line is you’re not going to lose anything in a chapter 13 and you’re just going to get all your creditors off your back and reorganize and get back on track financially. In a Chapter 7, there are limits to how much you can keep, but the bankruptcy attorney’s job is to make sure you keep everything you can.