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32 13 bankruptcy would provide the borrower with an automatic stay 2 that prevented the foreclo- sure from moving forward while the borrower proposed a repayment plan that would allow for the past due payments to be cured over time at 0% interest 3 and to continue to make ongoing payments on the mortgage. Christopher Jones, a bankruptcy attorney with Acclaim Legal Services, with offices in the Metro Detroit area, said, "Prior to 2008, Chapter 13 bankruptcy often presented the most realistic and beneficial opportunity for a borrower facing foreclosure to avoid the foreclosure and cure the default on the mortgage." After the financial crisis, many mortgage lenders and investors began offering loan modifications to distressed borrowers while interest rates fell. While not all loan modifications were the same, many of them would bring the loan current, lower the interest rate or provide for a fixed rate on adjustable-rate loans, and extend the term of the loan. e net effect for most borrowers would be a current loan with a lower payment and a lower interest rate, but for a longer term. For a borrower trying to save a home from foreclosure, the resulting loan modification processes offered a different path from filing bankruptcy. is has remained true, as interest rates have remained relatively low until recent actions designed to combat inflation began to reverse this trend. In economic climates like we are experi- encing now, Jones says a borrower faced with capitalizing the arrears and obtaining an interest at 7% or more, or double their current rate, may find "a Chapter 13 is a much more attractive alternative." Jones explains, "the borrower can preserve the existing (and likely low) interest rate and cure the arrears at 0% interest over the term of the bankruptcy plan along with resolving other outstanding debt." A Chapter 13 bankruptcy is not an easy task and can be an onerous process, but the benefit of getting the mortgage back on track may be worth it for a borrower trying to save their home. Jones often analyzes the option of a loan modification vs. a Chapter 13 bankruptcy with his clients. "e starting point of my analysis is short-term affordability of each option. e sec- ond part of my analysis is the long-term financial implications of each option." e interest rate is a crucial component of the analysis. Per Jones, "I'm seeing this more and more often with rising interest rates … and more borrowers are opting for Chapter 13 bankruptcy vs. the loan modifica- tion as a result. e increased interest rates under proposed loan modifications are affecting the short-term affordability and long-term net cost associated with the mortgage, making Chapter 13 the more attractive option." As lenders and servicers begin to navigate this new era in loss mitigation and default ser- vicing, new and creative ideas will emerge to help borrowers at risk of losing their homes. But in the meantime, a Chapter 13 bankruptcy, if feasible, is a good alternative to stop the foreclosure and allow the borrowers to buy time and propose a repayment plan on their delinquent mortgage payments while retaining their locked-in low interest rate. Laura M. Hawley is a Senior Compliance Attorney at Schneiderman & Sherman, P.C. specializing in foreclosure, compliance issues, creditor's rights, and litigation. Hawley is licensed in Michigan and Illinois as well as the Eastern and Western Districts of Michigan, Northern District of Illinois, and the District of Colorado. She received her undergraduate degree from the University of North Florida in 2003 and graduated from Michigan State University College of Law in 2006. She has spoken on several panels over the years regarding her knowledge of creditor's rights, bankruptcy, and loss mitigation. Michael P. Hogan is the Managing Attorney of the Bankruptcy Department at Schneiderman & Sherman, P.C. and practices in the areas of bankruptcy, creditor's rights, and commercial litigation. A graduate of Michigan State University College of Law, Hogan was twice elected by his peers to serve on the Board of Directors for the Consumer Bankruptcy Association of the Eastern District of Michigan. He has been a speaker for the Consumer Bankruptcy Association's Steven W. Rhodes Consumer Bankruptcy Conference, the American Bankruptcy Institute's Central States Seminar, ICLE's Bankruptcy Reform Act: One Year Later, and the National Bar Association Annual Conference. As lenders and servicers begin to navigate this new era in loss mitigation and default servicing, new and creative ideas will emerge to help borrowers at risk of losing their homes. 2 11 U.S.C 362 3 11 U.S.C. 1325 Legal Industry Update By By Laura M. Hawley & Michael P. Hogan