Debtor can modify mortgage in chapter 13 if not homestead

J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization
Posted on Apr 15, 2015

In this case the debtor lived in one house when she filed chapter 13, but decided to sell it and move into another house that she owned. She owed over $100,000 on the one she moved into, but it was only worth $60,000. She proposed in her chapter 13 plan to only pay the $60,000 plus some interest (the "secured claim"), and treat the other $45,000 as an unsecured claim which would be discharged when she finished her case, having been paid very little.

The Bankruptcy Code permits this, so long as the property whose mortgage that you intend to "modify" or change is not the debtor's principal residence. The debtor argued that since the debtor did not live in the house on the bankruptcy filing date, it was not her principal residence for this purpose.

Hon. David R. Jones, the bankruptcy judge, agreed with the debtor, so she will be permitted to pay the value of the home, and be released from the balance of the debt, assuming that she completes her plan. The Court found that "the date on which a debtor’s principal residence determined for purposes of 11 U.S.C. § 1322(b)(2) is the petition date." In re Collins, Case No. 14-34816, US Bankruptcy Court, Southern District of Texas.

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