A Primer On Post-Petition Mortgage Fees
Many people seeking the protections offered by a Chapter 7 or Chapter 13 bankruptcy filing are doing so in order to prevent foreclosure. Chapter 13 is particularly helpful in this regard, as filers in default have the opportunity not only to get current on their payments (by freeing up money that would have been diverted to other debts), but can roll their arrearages into the three-to-five year payment plan established by their filing.
The purpose of this is to allow struggling homeowners to utilize government-provided financial tools to get back on track while still keeping their homes. In theory, once the bankruptcy is closed, the homeowner would be current on mortgage payments and would be able to move forward without the fear of defaulting on the loan or going into foreclosure.
This isn’t the case for some homeowners, though; some actually come out of their Chapter 13 bankruptcy only to realize that their lender has tacked on fees and penalties to the point that the new mortgage payment isn’t financially feasible, and the home is again in jeopardy. To add insult to injury, many homeowners never even got notice that their payments would be increasing.
Differing interpretations = differing results
Ironically, a new bankruptcy regulation – Bankruptcy Rule 3002.1 – was created to stop lenders from unfairly “springing” a higher payment (one that contains penalties, fees and legal costs the lender incurred trying to collect any arrearages). The rule established parameters under which a mortgage lender would need to file notice of any increase in payments – regardless of the cause – with the bankruptcy court and the bankruptcy trustee if they were incurred after the bankruptcy was filed. It seems fairly clear-cut, that if mortgagors were going to assign penalties to a borrower’s account after that borrower had filed a Chapter 13 bankruptcy, then notice must be given to both the court and the trustee.
The problem is that some lenders have argued – successfully – that giving the borrower notice would violate the terms of the automatic stay. Others have argued that no notice was given because mortgage payments were not in arrears before the bankruptcy was filed. Similar cases around the country have presented widely different results, even with the same arguments that were found persuasive in other bankruptcy circuits. This has caused some lenders to exit bankruptcy and fall right back into foreclosure.
Getting the help you need
If you are a homeowner who has filed for Chapter 13 bankruptcy protection, you might very well run into this situation. Without an experienced bankruptcy attorney at your side throughout the process, you could find yourself in the position of still losing your home dependent upon the actions of your lender. For more information about this confusing area of the law, speak with an experienced bankruptcy attorney in your area. Contact us anytime at (303) 438-8477.