What’s a “Cure and Maintain” Chapter 13 Bankruptcy?

I’ve seen a lot of cases in my 17 years as a Pittsburgh bankruptcy lawyer. The most common Chapter 13 bankruptcy case is one in which a homeowner files for Chapter 13 relief in order to protect his home from mortgage foreclosure. Here’s a chronology of a recent Chapter 13 case that I filed in April 2010.

My clients, a young couple with no kids, were from the suburbs of Pittsburgh. They had purchased their home in 2008. Immediately thereafter, they were hit with two quick strikes. The wife developed a severe and life-threathening medical problem. As a result, she was out of work for 6 months. The husband also saw his hours at work cut back significantly, with no hope of overtime income. As a result, they were unable to afford their relatively new mortgage and they quickly fell into foreclosure. After a few months of failing to work out a loan modification with their mortgage company, they called my office to look into Chapter 13 bankruptcy as an alternative.

After speaking with them in my office for about one hour, I was able to propose to them their Chapter 13 bankruptcy plan payment. As described in a recent post, the Bankruptcy Court in Pittsburgh requires that all secured payments (mortgages and car loans) be paid inside the plan. This means that a Chapter 13 filer in Pittsburgh will no longer pay their mortgage company directly, but rather will make one monthly payment to the Chapter 13 Trustee which will include their monthly mortgage payment, along with any car loan payments, in addition to their mortgage arrears and perhaps a dividend to their unsecured creditors. In other words, you include all of your debt. You will even include any debts on which you’ve never missed a payment, such as a car loan or credit card bill.

So, what does “cure and maintain” mean? Well, the specific clients in this case were approximately $14,000 in arrears on their mortgage. They will be able to “cure” their mortgage arrears and maintain their home.

Fortunately, they are now in much better financial shape. The wife has her health back and found a job back in 2009 and the husband’s employer is now back to full force, and he’s getting a full 40 hours a week of work. So, their Chapter 13 plan includes their $800 monthly mortgage payment, the $14,000 of mortgage arrears and the $8,500 balance toward their car loan. As for unsecured debt, they have approximately $16,000 in medical bills and $4,000 in credit cards. Given their income however, they are not devoting any of their income toward the unsecured debt. Thus, their plan proposed 0 per cent to the unsecured creditors, and at the end of their case, those debts, such as medical bills and credit cards will be discharged (wiped out).

Specifically, Husband is making the Chapter 13 monthly payment via a payroll deduction, which is the required method of paying in the Bankruptcy Court in Pittsburgh. As described previously, the Judge will require that form of paying the plan, unless the clients believe that their employer might take action against them in the event they find out about the bankruptcy filing.

So, how are they doing? These clients filed their case in April and they attended their Meeting of Creditors in May. They had begun their payroll deduction as required in April as well, so the Trustee was pleased with the fact that payments had already been made. One creditor attended their Meeting; that was a lawyer from the mortgage company. He had no questions of the clients other than whether or not they had homeowners insurance. At the conclusion of the Meeting, the Trustee’s Office recommended that their Chapter 13 plan be approved on an interim basis, and the clients were informed that they did need to reappear at the follow-up hearing, known as a conciliation conference, which will be in November. As their attorney, I will be attending that conference on their behalf and getting their Chapter 13 plan approved on a final basis. Once it’s finally confirmed, then their Chapter 13 plan will be finalized for the remainder of the plan term, which is five years in all. At the end of their case, their mortgage will be current and they will take over making direct payments of just the monthly mortgage bill. All of their other debts, such as back taxes, medical bills and credit cards will all either paid in full or wiped out (discharged).

I recently spoke with the clients and they said that things were fine now that they knew that their house was protected and that their bills were getting paid. Right now, they said that things for them are on “auto-pilot”, and they have greatly-reduced stress knowing that their house is protected.

Let me know if you have questions or comments!

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