In cases of impending foreclosures, homeowners are allowed to include their mortgage arrears in the chapter 13 plan. However, timely mortgage payments must resume on the 1st of the month following the bankruptcy filing. If the value of the home is below that of the first mortgage on the property, the debtor may be able to discharge a second mortgage and any other junior lien(s) against the home. To receive discharge of a second mortgage, the debtor must complete the chapter 13 plan. Should the bankruptcy be dismissed prior to completion of the chapter 13 plan, the second mortgage lien would remain on the property.
Debt repayment in chapter 13 may be an alternative to chapter 7 bankruptcy whenever the debtor's current monthly income exceeds the state median income for the respective size of household or the debtor wishes to repay certain debts over a longer period of time (mortgage arrears and tax liabilities). The chapter 13 plan is three to five years and the chapter 13 payment must equal the debtor's monthly disposable income - portion of the monthly income not required to meet the necessary needs of the debtor and his/her dependents.
Although in most cases the plan payments remain the same, it is possible that adjustments may become necessary should the debtor's income change significantly while in chapter 13. If the debtor is unemployed or expects a salary increase after the plan confirmation, the chapter 13 trustee will request that the debtor submit an amended plan whenever the income changes occur. The trustee will consider not only the salary increase, but also whether the debtor's expenses have increased as well. In such situations, the disposable income may be unaffected and the plan payment could stay the same.
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