For debtors with regular income, saving a home with Chapter 13 bankruptcy proves effective most of the time. However, there are some problems debtors may face at the end of their Chapter 13 bankruptcy.
Below are a few suggestions on how to deal with the issues as they arrive:
Mortgage Late Fees
Technically, mortgage servicers are allowed to accrue late fees on a loan while a debtor is in Chapter 13 bankruptcy. However, these fees can only be applied to the loan if the debtor does not successfully complete their repayment plan. If the debtor drops out of Chapter 13 bankruptcy, if their case is dismissed, or if they convert to Chapter 7 bankruptcy, the mortgage servicer has the right to assess the late fees. Unfortunately, some mortgage servicers assess late fees at the end of the Chapter 13 bankruptcy even if it was completed successfully. If this happens, the debtor needs to inform their bankruptcy attorney.
Sometimes the amount of money a debtor needs to pay for taxes and insurance changes while they are in Chapter 13 bankruptcy. Some mortgage servicers fail to inform the bankruptcy court of these changes, pay for them on behalf of the debtor and then bill the debtor for it after their Chapter 13 bankruptcy case is closed. It is the obligation of the mortgage servicer to inform the bankruptcy court of any changes and if they did not do this, they may not be entitled to charge the debtor at the end of their bankruptcy case. If you've been hit with an extra escrow bill after your bankruptcy discharge speak with your attorney immediately.
Adjustable Rate Mortgage
If a debtor has an Adjustable Rate Mortgage (ARM), their monthly payments may go up in Chapter 13 bankruptcy. However, some mortgage servicers fail to inform the bankruptcy court or the debtor of the change. Instead they hit the debtor with a huge bill after their case is closed. If this happens, the debtor should immediately contact their bankruptcy attorney. If the mortgage servicer failed to inform the bankruptcy court of payment changes they may not be entitled to bill the debtor after the fact.