Home Foreclosure after Chapter 13 Bankruptcy
Sometimes debtors who file for a Chapter 13 bankruptcy, make all the required payments to the Chapter 13 and at the end of the Chapter 13 they are hit with a mortgage foreclosure claiming they are thousands of dollars behind in payments. Often Debtors fail to put into their plan language that will prevent a foreclosure. How could they file for bankruptcy and still face foreclosure:
- Some mortgage companies will attempt to charge late fees from every month that the Debtor is in a Chapter 13 bankruptcy until it is discharged. Mortgage companies are allowed to apply charges if a Chapter 13 is dismissed, withdrawn or converted to Chapter 7. However, they can’t charge these fees if the debtor completes their Chapter 13 plan. If a debtor is charged fees after the completion of their Chapter 13 plan and discharged, they are able to have the charges reversed – often with the ability to recover attorney fees.
- If the Debtor’s mortgage is an adjustable rate mortgage (ARM) and interest rate increased during the Chapter 13 the Debtor will also fall behind. If the mortgage company did not report the increase, it can leave the debtor with a foreclosure and mortgage delinquency at the end of a Chapter 13 plan. If the Debtor places proper plan language in the plan much of this can be prevented. Also the debtor or bankruptcy attorney may be able to negotiate to abate the increase.
- Also escrow payments for insurance and taxes while the Debtor is in a Chapter 13 must be paid and accounted for. Changes in the amount of money a debtor needs to pay for insurance and taxes needs to be reported to the bankruptcy court. If they are not reported and the mortgage company pays the charges on the debtor’s behalf they will hit the debtor with a large bill at their end of their Chapter 13 bankruptcy case. This type of mortgage snafu may also be resolved by your bankruptcy attorney.
The way to insure against foreclosure after you file is to include language in the plan to prevent such problems.