Mortgages and Proof of Claims in a Chapter 13 Bankruptcy

A debtor’s mortgage is often at the center of the Chapter 13 Bankruptcy Plan. Any applicable arrears must be addressed through the plan. The debtor has a choice of whether to pay the ongoing mortgage through the plan or outside the plan. In either case, however, prior to changes in the Bankruptcy Procedure of December 2011, a debtor could be faced with a number of surprises upon or after completion of the plan. Debtors would often be informed of increased payments or fees assessed during the bankruptcy and told that they are due and owing immediately to remain current because the fees were not addressed by the plan. Increased fees could be due to a number of different reasons, including escrow issues or taxes.

Rule 3002.1(c) of the Bankruptcy code now requires that both the debtor and the debtor’s attorney be given notice of any post-petition fees within 180 days of the fees being incurred or assessed. If either the debtor or the trustee dispute that this amount is owed either party has one year to dispute the fees. If there is a dispute there will likely be a hearing on the matter to decide the issue. If the amount is not in dispute, the debtor should begin paying the increased or different fees immediately, either through the plan or in ongoing payments made outside the plan.

Another very important change in the rules is that within 30 days of completion of all plan payments the bankruptcy trustee must file a notice, served to the debtor, the debtor’s attorney, and secured claimants that all payments have been made and that all arrears, if applicable, have been cured. The claimant is required to respond with 21 days as to whether he/she agrees or disagrees with the trustee’s assessment. If a party is in violation of this rule, or any other of the new rule changes, he may be estopped from certain remedies and/or may be sanctioned. For example, if a mortgage lender does not respond whether he/she agrees that arrears have been cured, the court may not allow the party to later say that the arrears are not cured. Failure to comply with the rules can be very costly to the lender, a marked shift from the previous costly effects to the debtor.

If you have questions about this, or would like to schedule a free consultation, contact a St. Louis Bankruptcy Attorney Today.

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