Sometimes a debtor will file a Chapter 13 bankruptcy, make all the required payments to the Chapter 13 and at the end of Chapter 13, they will still be hit with a mortgage foreclosure. The lender may claim they are thousands of dollars behind in payments because late fees piled up during the bankruptcy. Or it may be property taxes and insurance went unpaid.
Often Debtors fail to put into their plan language that will prevent foreclosure at the end of the case. How could someone file for bankruptcy and still face foreclosure:
Allowed late fees in a Chapter 13 foreclosure
Some mortgage companies attempt to charge late fees for every month that the Debtor is in a Chapter 13 bankruptcy. This is only allowed if the case is dismissed not if it is discharged. Mortgage companies are allowed to apply charges if a Chapter 13 is dismissed, withdrawn or converted to Chapter 7. However, they are not supposed to charge penalties 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 can have the charges reversed – often with the ability to recover attorney fees.
Increased interest rates from an adjustable rate mortgage ARM in a Chapter 13 Foreclosure
If the Debtor’s mortgage is an adjustable rate mortgage (ARM) and interest rate increased during the Chapter 13, the Debtor may fall behind. If the mortgage company did not report the increase, it could leave the debtor with a foreclosure and mortgage delinquency at the end of a Chapter 13 plan. Much of this can be prevented if the Debtor places proper plan language in the plan. Also, the debtor or bankruptcy attorney may be able to negotiate to abate the increase.
Escrow Payments for insurance and taxes in a Chapter 13 foreclosure case
Escrow payments for insurance and taxes, while the Debtor is in Chapter 13, must be paid and accounted for. Changes in the amount of money a debtor needs to pay for insurance and taxes need 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 the 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. Insure your budget includes the necessary expenses, so you are not still in foreclosure at the end of your case.