Though more common in the commercial lending context, loans secured by a person’s residence are occasionally designed to mature or balloon after a certain number of years. Often, when these loans were originated, the mortgage broker would assuage whatever fears a borrow expressed by stating that, when the time of loan maturity arrived, they would have little difficulty refinancing loan. But as the halcyon years preceding the mortgage crisis ended, those assurances proved untrue. Lending standards tightened and refinancing proved to be impossible for many.
A recent opinion from Judge Humrickhouse in the Eastern District of North Carolina gives some hope for borrowers in such a situation. In re Smith states that the filing of a chapter 13 case allows a debtor an additional five years in which to payoff a loan that has matured prior to the bankruptcy, and allows the borrower to adjust the interest rate to 5.25%.
Though chapter 13 plans are limited in the relief they offer home owners (generally, granting them five years to pay back any arrears while continuing to make their on-going mortgage payments), Judge Humrickhouse’s opinion broadens the relief available under chapter 13 in an important way.