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Exceptions to Anti-Modification Rule

1. Anti-Modification Rule Relating to Loans on a Homeowner’s Principal Residence

2. Exceptions to the Anti-Modification Rule – Generally

3. Cure and Maintain – Curing Past Due Payments While Maintaining Future Mortgage Payments.

At least fifty percent (or more) of all Chapter 13 bankruptcy cases are filed with the primary intent of saving a home from foreclosure. The Chapter 13 process is especially helpful in allowing individuals to "cure and maintain" – repay past due mortgage payments in a bankruptcy plan over a 3 to 5 year time period while simultaneously making the ongoing (future) mortgage payments. This major exception to the anti-modification rule (which prevents changing the terms of a home mortgage) permits the Court to approve a bankruptcy plan which allows the homeowner to cure a default on the mortgage payments by paying the missed payments in installments over a 3 to 5 year time period while continuing to pay the future mortgage payments. This process (typically called “cure and maintain”) is designed to help individuals who had sufficient income to pay their home loan when they purchased it, but suffered a temporary interruption in income which prevented them from making the payments.

Example #1

Assume that Dick and Jane (a married couple) earn combined take home pay of $3,600 per month. Dick works. Jane does not. She stays at home with her new born son. They have a $1,200 monthly mortgage payment and a $500 monthly car payment.

Dick is laid off from his job. The family goes without any income (except for Dick’s unemployment benefits) for 6 months. They continue to make the car payments but stop making the mortgage payments. The employer rehires Dick in the 6th month after the layoff.

Almost immediately after Dick goes back to work, the mortgage company posts the home for a foreclosure sale to occur in month 8. It demands immediate payment of $7,200 (the full amount of the missed payments) to avoid foreclosure. The mortgage company refuses to take partial payments.

In a typical Chapter 13 bankruptcy case, Dick and Jane will be able to convince the Court to approve a plan which permits them to pay the future mortgage payments of $1,200 per month, plus an extra $120 per month for 60 months to retire the arrearages. As part of the process, the mortgage company is prohibited from proceeding with a foreclosure sale or taking any further action to collect the debt outside of the bankruptcy process.

The only major requirement for this relief is “feasibility.” Dick and Jane need to prove that they can make the monthly plan payments of $1,320 (the future mortgage payments plus the extra amount to cure the default), the $500 car payment, plus all other ongoing expenses. In this example, Dick and Jane will probably be able to convince the court to approve their plan if their budget shows that the income remaining after the house and car payments ($1,780) will be sufficient to pay for food, utilities, insurance, medical expenses, transportation costs and all other ongoing family expenses.

4. Lien Stripping a Second Mortgage or Other Junior Lien Asserted Against a Residence

5. Early Maturing Loans (Loans that Mature within 5 Years)

6. Mobile Homes

7. Loans Secured by Additional Collateral


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