When a homeowner files for Chapter 13 bankruptcy, the mortgage company that retains their note doesn’t have several options except to await the trustee to finish the homeowner’s repayment plan. However, in most cases, the mortgage company will get the overdue payments and charges back, in addition to the monthly mortgage payments in the event the homeowner keeps the residence.
Avoid It
Mortgage businesses want to avoid bankruptcy. The Federal Trade Commission recommends calling your creditors as soon as you fall behind on your payments, and that includes your mortgage. Your property lender will contact you by telephone and mail with offers to assist you through the rough patch, and the FTC urges exploring these options with your lender. Whenever you do, explain to your lender why you dropped and if it’s a short-term or long-term problem. From there, your lender might be able to help. Bankruptcy costs your lender money and time, as it costs you.
In Bankruptcy
As soon as you file, your mortgage lender, including most your other creditors, is barred from gathering everything you owe before the automatic stay is complete. But your mortgage lender will probably be regarded as a secured lender, because its debt is tied into a tangible asset, your property. In this case, even if the house is in foreclosure–but before the home is sold at auction–your lender is bound into the conditions your bankruptcy trustee crafts for your payment plan.
Second Mortgages
If your house has a second mortgage, then that creditor’s rights will be dependent on what you owe on the house. If you are upside down to your house, this means you owe more money than the house is valued at. In this case, in case you’ve got a second mortgage on the house, your trustee has the right to eliminate your second mortgage and then convert it into a non-secured claim. This implies repayment to this creditor is a lower priority, and it will probably receive only a small fraction of what it is owed.
The Payment Strategy
Your trustee-crafted payment plan will be either three or five years long, determined by just how much money you owe and how much disposable income you have. Part of that payment plan will be the back payments and fees that you owe on your mortgage after you dropped behind. You must repay this money, together with earning the usual monthly payment on your mortgage, during the life span of the payment plan. During this plan, your automatic stay is in place and your mortgage company cannot pursue any additional action.
Foreclosure
If you miss a payment through the plan, then your trustee will probably eliminate your automatic stay. At that point, you are fair game to your lender. Your lender has a few options at this time, and among these is to pursue foreclosure. If the house was in foreclosure prior to the bankruptcy filing, the mortgage company may start where the process left off. The mortgage company may also attempt to work out a new payment plan with you.
