When filing Chapter 13 bankruptcy in Massachusetts, you can’t have everything your own way

Chapter 13 bankruptcy can be a very powerful tool for homeowners trying to work their way out of a mortgage problem.

The thing is, Chapter 13 has its own rules to comply with, and debtors probably don’t want to thumb their nose at them.

One of the rules callsĀ for secured debts to be paid off during the life of the plan, which by law can’t be longer than five years.

So how does that help with a mortgage, which often stretch for fifteen or thirty years?

In Massachusetts, the widely followed McGregor case creates an exception for these debts, so long as the debtor agrees to make regular payments on their mortgage note in addition to paying off arrears through the plan.

But the debtor in the recently decided Gusmao case tried to strecth the rules a little to far. Her plan called for lowering her mortgage payments and paying the note off after the plan ended.

No dice, said Massachusetts bankruptcy judge frank Bailey; in order to confirm a McGregor type plan, the debtor has to be willing to make her regular payments according to the terms of the original note (same interest rate, same payment amount, etc.).

You can’t have it all — in bankruptcy, like on Wall Street, pigs get slaughtered.

 

By Doug Beaton

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