Catching up On Your Mortgage Through Chapter 13–part 2

Law Office of Robert L. Firth Aug. 17, 2015

More answers about how you can have up to 5 years to catch up on your past-due mortgage payments.

Today’s blog post, and the last one, answer questions about how Chapter 13 protects your home, your other assets, and your paycheck while you take care of your obligations within a reasonable budget. See my last blog post about:

  • an example how this catching up with a mortgage actually works

  • whether the mortgage lender’s cooperation is needed

  • finishing your payment plan in 3 years instead of 5

Now on to today’s questions.

How Are Overdue Property Taxes Handled?

If you are paying your home’s property taxes as part of your mortgage payment, and you’ve fallen significantly behind on those mortgage payments, the lender may have paid some past due property taxes with its own money. If so, the lender would have added the amount it advanced for your taxes into the total amount that you are behind. Then you would have the length of your Chapter 13 plan to pay your lender that tax amount, in the same way that you would catch up on the back mortgage payments.

If your mortgage lender hasn’t yet paid an overdue property tax, you would pay that tax directly to the county or other tax authority over time in your payment plan. Your home would be protected from tax foreclosure in the meantime. Your lender would also not be able to use the overdue property tax as justification for its own foreclosure, as long as you are making progress on catching up, as well as keep current on new property taxes as they come due during your case (as well as kept up on the mortgage itself).

In the same way, if you have fallen behind on property taxes paid directly to the county or other tax authority (not through your mortgage lender), your Chapter 13 plan would include payments to that tax authority until you were caught up.

What if The Mortgage Lender and Homeowner Disagree About the Amount Past Due?

Chapter 13 has a good mechanism for determining the accurate amount of the arrearage (including any late charges, attorney fees and other costs), which is often a matter of dispute. All creditors, including your mortgage lender, who want to be paid through your Chapter 13 plan are required to file a document in bankruptcy court—a “proof of claim.” This documents state the total amount owned, the amount of arrearage and how it is calculated, as well as an itemization of any additional fees. You as the debtor then have the opportunity to object to any errors in that proof of claim. The bankruptcy judge is a convenient and experienced adjudicator if there is a dispute.

This issue has been a controversial one during the past 5-10 years because lenders have often been inaccurate and unclear about the amounts on their proofs of claim. This particularly became a problem when lenders added fees to the balance without telling the homeowners. As a result the homeowners would think that they were current only to learn, often after the completion of their Chapter 13 case, that apparently they were still behind. Bankruptcy Rule 3002.1 was put into place to solve this problem. This rule requires lenders to give timely notice of the amount owed and any changes to the amount, and provides for serious consequences if lenders fail to follow these rules.

What if Circumstances Change and The Homeowner No Longer Wants the House?

One of the great features of Chapter 13 is its flexibility. So you CAN change your mind and surrender your house part way through your case. Or in the right circumstances you could even sell the house. Either way at that point you can either stay in the Chapter 13 case or get out of it.

If you decided to give up your house midstream you could stay in the Chapter 13 case if there were still worthwhile reasons to do so unrelated to your house. For example, you could continue the case if you had other debts best handled in a Chapter 13 case—such as income taxes, support obligations, or possibly student loans. Your attorney would work with you to amend your plan to stop payments going to the house and redirect them elsewhere.

But if you filed a Chapter 13 case solely because of your house and now no longer needed or wanted to catch up on the arrearage, your attorney could either “convert” your case into a Chapter 7 one or simply end the Chapter 13 case by “dismissing” it. More likely your case would be converted into a Chapter 7 one to finish taking care of your debts, including possibly debts related to your now-being-surrendered house.