Chapter 13 gives you valuable power to force your mortgage lender to be up front about how much you owe, and to efficiently dispute the amount.
Catching Up on Your Mortgage over Time
A Chapter 13 case gives you the power to catch up on your home mortgage(s) over an extended period. This “adjustment of debts” type of bankruptcy can give you up to 5 years to catch up.
This power is found in the U.S. Bankruptcy Code language allowing you to cure “any default within a reasonable time.” Section 1322(b)(5). That amount of time is interpreted to mean, in most circumstances, the length of your Chapter 13 payment plan. Most payment plans are between 3 and 5 years long. If you need more than 3 years, usually you can extend your plan longer, up to 5 years.
The Mortgage Accounting Challenge
If you fall behind on your mortgage it can be ridiculously difficult to get accurate information from your lender about the amount you owe. If you don’t have accurate information, you can’t fulfill your desire and responsibility to cure the arrearage.
This problem is aggravated over the course of the case when the mortgage payment amount changes over time. This could be from normal changes in the interest rate, property tax and insurance, or the addition of fees.
You can’t cure the arrearage or maintain monthly payments if you aren’t timely told the amounts you owe. You can’t efficiently dispute the stated amounts if the lender does not respond in good faith.
This accounting confusion had been a serious problem for millions of homeowners trying to save their homes. In 2011 a new procedure was created within Chapter 13 to efficiently resolve mortgage accounting disputes. It’s contained in Rule 3002.1 of the Federal Rules of Bankruptcy Procedure. It gives you the power to force your lender to work with you to determine how much you owe.
How the Procedure Works
The procedure focuses on changes to the ongoing mortgage payment amount. You can’t catch up on the arrearage if that arrearage increases because you’re not paying the right monthly payment.
Your lender “shall file and serve on” you, your bankruptcy lawyer, and your Chapter 13 trustee “any change in the payment amount.” This includes “any change that results from an interest rate or escrow account adjustment.” This notice must be given “no later than 21 days before a payment in the new amount is due.” Rule 3002.1(b) of the Federal Rules of Bankruptcy Procedure.
You or your lawyer can object to the change in the lender’s notice. You must do so before that new payment is due. If you don’t object on time, the lender’s payment change goes into effect.
If you do object, the bankruptcy judge determines whether the lender’s proposed new amount is appropriate or not.
This procedure forces the lender to be up front about changes in how much you owe. It allows you to dispute those changes, and to get a quick court determination about who is right.