Scenario 1 — I’m behind on my mortgage
One of our clients biggest fears is losing their home. Some our clients are behind a few months on their home while others are on the eve of their home being foreclosed. Fortunately, the Bankruptcy process allows you to keep your home as long as you meet certain conditions:
(1) You must be able to make your ongoing mortgage payments when you file a case; AND
(2) You must provide for a plan that pays back your mortgage arrears
The basic premise here is that when you complete your plan you will be completely current on your mortgage. The Court satisfies these conditions above through a test called feasibility and a declaration statement.
Feasibility — your Chapter 13 plan will have you paying a certain amount per month to a trustee. That trustee will then distribute those funds according to the terms of the plan. The process is set up this way so that all parties and can see the money coming in and how it is going out (debtors, creditors, and the court). Thus, you as the debtor have to show that you can afford to make that monthly plan payment to the trustee.
When you file a case you submit Schedule I (income) and Schedule J (expenses). Schedule I is a summary of your typical paycheck or self employment income. It starts out with the gross and goes through your various deductions. It also accounts for other sources of income such as disability, social security, and child support. Schedule J is what you actually spend on things like: your mortgage, car payments, insurance payments, food, clothes, utilities, etc. When you subtract Schedule J from Schedule I you must have a number that equals your plan payment.
Declaration Statement — in the Eastern District of Texas the Court will not confirm your case unless you have made all your post petition mortgage payments directly to the lender. For example, if you file on the 15th of the month — then you must start making your normal monthly mortgage payment directly to the lender on that next 1st of the month (when most mortgages are due). The declaration form you sign is a certification of post petition obligations, a copy of which can be found here.
Your first plan payment is due 30 days after you file the case. Your mortgage payment is due at it’s regular normal due date. Thus, it is important to talk to an experienced attorney and time your filing correctly to make sure you can make the requisite payments.
Scenario 2 — I am current with my mortgage
Your Chapter 13 case will not disrupt your normal mortgage in any significant way if you are not behind. Just keep making your normal payment as you typically would do. The Court will still make you sign the 3015(c) form noted above. There are a couple of pitfalls that you need to be aware of:
(1) Mortgage payment due on the 1st but note “late” until after the 15th. Under this scenario you can technically become behind with your mortgage (in the eyes of the mortgage holder and the Court) if you file the case before you make that payment. For example, say you file the case on the 5th of the month and have yet to make your mortgage payment. Under this scenario, you are now one behind on your mortgage because the payment was technically due on the 1st. Your plan must now account for the one missed payment and the mortgage company will take the payment you make in between the 5th and the 15th and apply it your next monthly payment instead of the month you were trying to pay. This won’t kill your case or your plan. It can just be an aggravation or cost you a few dollars as explained in the 2nd part of pitfalls explained below.
(2) Notice of Post Petition Mortgage Fees — buried in the hundreds of pages you signed at closing was a provision that allowed your mortgage company to pass on legal fees directly to you. When you file a Bankruptcy case they will implement that provision. A lot of times there are no fees if your mortgage is current. However, if the timing of your case filing and your mortgage payment cause you to behind then the fees may be implemented or more than you were expecting. This can especially happen under the scenario above when you become technically past due. In that scenario the mortgage company will be forced to hire someone to object to your plan. It can all be fixed. However, it easier to plan for it ahead of time and avoid the issue.
As you can see there are a lot of small nuances and pitfalls you need to be aware of when you file a Bankruptcy case. That is why it is important to hire the right attorney who is experienced in the types of bankruptcy and mortgage issues listed above. Many firms in town have you meet with a dedicated sales person who signs you up as a client. Next you get passed along to a paralegal and never meet your attorney until your hearing date. Under that scenario, do you think you would be able drill down and spot potential issues as those listed above? At Collins & Arnove PC we have filed thousands of cases. An attorney meets with each person individually and drills down to spot any potential issues. We go through timing issues to make your case go smoothly and set proper expectations so your case can be successful. Call us at 972-516-4255 to set a free consultation OR make your appointment directly through our online portal.
Written by William Collins
Founding partner at Collins & Arnove PC