While filing Chapter 13 bankruptcy triggers an automatic stay on any foreclosure attempts, this relief is temporary. The stay gives you a moment to think clearly about what to do next about keeping your home.
Mortgage lenders are treated differently.
Because their lien is a property interest in your home, they get special treatment by the bankruptcy court. If you aren’t making regular payments, they can ask the court to lift the stay so they can foreclose.
Due to this special situation, it’s important to follow certain steps to come out on the other side of your Chapter 13 repayment plan with your home.
Keep making regular payments – even after filing Chapter 13.
While it may feel hopeless due to how far you’ve fallen behind, keep in mind that the purpose of the Chapter 13 repayment plan is to cover the arrears. Separately, you must keep making the regular mortgage payments – including escrow (property tax and insurance).
If you fail to make your current payments, your Chapter 13 case could get dismissed without discharge.
Watch out for “hidden” liens on your house.
Check the public record to ensure there aren’t any liens you didn’t know about attached to your house. An example would be a contractor’s lien for work completed that wasn’t paid for. If you haven’t kept up with your escrow payments, you may have a tax lien against your house. Make sure these are all included in your bankruptcy filing.
Look into a loan modification.
Just because you’re filing bankruptcy doesn’t mean that you can’t work out a modification of your mortgage with your lender. In a modification, the lender will often add the arrears to your existing loan balance, to be paid down over the life of the loan. Alternatively, a part of your balance may be set aside and not charged interest, to be paid in a lump sum at the end of the loan or upon sale of your house.
If you negotiate a modification with your mortgage lender that takes care of the arrears, then that can make your resulting Chapter 13 plan payment much easier to handle.
Double-check the lender’s claim for mistakes.
Any creditor who wishes to be paid in a Chapter 13 bankruptcy must file a proof of claim, with a detailed attachment if it’s the mortgage for your principal residence.
The attachment must detail all payments and charges to the loan from the date of the first default. It must also outline any taxes and insurance covered by escrow funds, and include an analysis of whether your existing monthly payment is adequate to cover those expenses.
Take the time to go over all of the numbers carefully, and make sure they match your own records. Never assume the data provided by the mortgage lender is correct or complete.
Keep good records of your payments.
It seems simple, doesn’t it? Take the payment, record it on the homeowner’s behalf. And yet far too many mortgage servicers can’t seem to handle that simple task.
Your lender has to keep two sets of records for your payment history – before bankruptcy, and after bankruptcy. Instead, payments often go undeposited for months.
The safest thing is to send a paper check (never a money order) and mail it “return receipt requested.” It’s worth the trouble to have proof that the check was cashed and that your lender received it.
Read all mail from your mortgage servicer.
Your lender must send you a Notice of Payment Change if your payment changes after filing bankruptcy due to interest rates or changes in escrow (real estate taxes and insurance).
It might look wordy and intimidating, but make sure to read the fine print to figure out how your payment is changing and adjust accordingly. If you’re still confused, ask your bankruptcy attorney to look it over for you.
Wrap things up neatly after your last payment.
Once you make that final, celebrated payment to the bankruptcy trustee, your mortgage servicer must receive a notice about the state of your loan balance.
This is where sometimes things get weird. If the lender tries to claim that the pre-bankruptcy claim wasn’t paid in full or that any post-filing amounts are still unpaid, they have to file a reply. This is a good thing, because it will force any discrepancies to the surface, so that a bankruptcy judge can sort them out.
You want to come out of your Chapter 13 plan knowing exactly where things stand with your mortgage.
Get yourself a trusted partner in the process.
For most of us, our home is the largest and most emotionally significant purchase we will ever make. Don’t let the complexities of getting through the bankruptcy process cause you to lose your home on a technicality. Partnering with an experienced bankruptcy lawyer who will be there for you throughout and at the end of your repayment plan is critical.
It’s free to chat with me about your options – you can call or text me at 215.551.7109, or drop me a line.