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Recent court ruling sides with mortgage lenders

Residents of Kentucky who are considering filing for chapter 13 protection should be aware of a recent ruling by the United States Court of Appeals for the Fourth Circuit. Typically, a chapter 13 debtor is prohibited from modifying a lender's claim that is only secured by his or her primary residence. In the recent decision, the Fourth Circuit ruled that a lender's additional interest was supplementary to the lender's lien on the borrower's residence and did not qualify as additional collateral that would give someone the leeway to modify the loan under chapter 13.

To qualify for chapter 13 protection, a debtor must submit to the bankruptcy court a repayment plan that outlines how he or she will pay back a portion or all of his or her debt. The exact amount will depend on a person's income, the types and amount of debt he or she owes and how much property he or she owns.

If the collateral for a lender's secured claim is only the debtor's principal residence, the bankruptcy code restricts him or her from being able to change the claim except in certain situations. He or she won't be able to get the interest rate reduced, payment period lengthened or loan crammed down by having it separated into secured and unsecured portions by way of using the residence's value and then just repaying a small portion of the unsecured part. However, a debtor may be able to modify his or her claim if it is secured by more than the interest.

A bankruptcy attorney may assess a client's financial situation and advise him or her of the best bankruptcy option. The type of bankruptcy a lawyer suggests may depend on the types of debts involved and whether someone has a regular influx of income.

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