In the Northern District of Georgia, the “standard” Chapter 13 plan that is used provides that on-going mortgage payments are to be made directly to the mortgage company during the pendency of your Chapter 13 plan. In other words, if you file Chapter 13 because you are three payments delinquent, your missed payments (the mortgage “arrearage”) will be paid in your plan. However your ongoing mortgage payments are sent directly to the mortgage company.
I know that in some bankruptcy filing districts, on-going payments are collected by the trustee and paid through the trustee’s office. The trustees in the Northern District of Georgia do not do this as a matter of course.
This means, therefore that Chapter 13 debtors have the significant responsibility for paying their mortgage payments on time each month after their cases are filed. If you miss one or two payments, the mortgage lender can and will file a Motion for Relief from Stay. They will argue that your missed payments reflect your inability to afford your mortgage and that bankruptcy protection ought to be lifted so that the mortgage lender can foreclose.
As a rule, bankruptcy judges are reluctant to lift the stay because doing so would mean that you will lose your homes, perhaps because of an emergency or unexpected situation beyond your control. I have argued a number of Motion for Relief hearings and in almost every case, the judge will give my client “one more chance” to keep his home. Usually this means that you will have to cure the “post-petition” arrearage over the next six months.
Attorneys that represent mortgage companies know that they are unlikely to get the stay lifted, so they are usually agreeable to a deal, at least the first time a post-petition delinquency happens.
However, and this is a big however, the a consent agreement with your mortgage company to deny its motion for relief from stay comes at a cost. Not only will you have to repay your missed post-petition payments over a short (usually 6 month) period of time, but you will also have include late payments in this agreement. The lender’s attorney will also include a hefty attorney’s fee provision – usually $600 to $750 for the privilege.
A case I am working on right now should give you and idea about how this consent order process works. My client fell behind on his mortgage payments by two months in October and November. I did get a letter from the mortgage company’s attorney but my client did not have the cash. The creditor’s attorney filed a motion for relief in December with a hearing scheduled for mid-January. Just a few days ago, my client called to say that he had the missed two months payments and that he had sent the money in to the mortgage company.
The lender’s attorney takes the position that it had to file a motion and that it will go forward with its motion. Our options are to settle by paying the $750 + the two missed late payments of about $90 each – a total of $930, or we can take our chances in front of the judge. Will the judge deny the motion on the grounds that the payments have been made, but still award attorney’s fees because the lender had to retain counsel? What if the judge is in a really bad mood and decides to lift the stay on the grounds that the debtor was technically in default?
The choice, of course, is the hands of my clients, but I can guess what they will decide. Even though they feel that they are being held up by the mortgage lender, they will take the deal and pay the $930 so they can sleep at night and not worry about possibly losing their house.
This particular case is probably a winner – I believe I could convince the judge to reduce the attorney’s fee demand because the missing two months have been paid. Usually, the consent deal involves paying two or three months over time and my argument that fees ought not be added is much weaker.
So, bottom line – if you are in a Chapter 13 and you fall behind on your mortgage, or insurance lapses on your house and the lender files a legitimate motion for relief from stay, you can figure that you are going to get stuck paying $600 to $750 in attorney’s fees to the mortgage company’s lawyers.