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Expect BK13 Filings to Rise

Article from DSNews.

During Covid and the 2008 crash, modifications and forbearances were heavily used to avoid foreclosure. In the crash, keeping people in their homes was paramount, as there was already a glut of houses sitting vacant and new loans were hard to come by.

With the current housing market, forbearance and modifications are not attractive to the borrower. Interest rates are likely higher than their current rate and stretching out their payments through re-amortization might not make enough difference.

What is BK13? BK13 is a type of bankruptcy that allows the borrower to restructure all their debt within a payment plan approved by the courts to be within the borrower's ability to pay. This is different than BK7, which disposes of the borrower's assets. While this isn't necessarily a bad thing for the lender, it does change how a loan performs.

If you're purchasing a loan that is in BK13 and performing to the plan, make sure you review the bankruptcy plan and documents to see the amount that is owed. In a lot of cases, the payment that is part of the plan is to become current, and doesn't include much principle.

If you're purchasing a non-performing loan, keep BK13 on your radar as a potential outcome and make sure you can manage the amount of time that is likely going to be added to your estimates.


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