What happens if I miss a mortgage payment during Chapter 13?

What happens if I miss a mortgage payment during Chapter 13? The mortgage company could ask the bankruptcy court for permission to proceed with a foreclosure! That doesn’t happen immediately, but I don’t want to downplay the severity of the situation here. Missing a mortgage payment during a Chapter 13 isn’t good. It is very important you stay up to date on payments. We’re going to talk through the process when you miss a mortgage payment so you can get back on track before it’s too late.

When is my first mortgage payment due?

Many times, people miss mortgage payments because they are unsure as to when to make the payments. Filing a Chapter 13 bankruptcy resents your prior payment history. The Chapter 13 essentially forces the mortgage company to treat your mortgage as if you were never late. Your mortgage will therefore be due on the 1st of the month after you file your bankruptcy petition.

In other words, if you file your petition on January 3rd, your first mortgage payment will be due on February 1st. This is important to note because many people think that mortgage payments are due on the 15th of each month. They’re not. They are due on the first. The fact that your payment is not deemed “late” if paid by the 15th is not a license to pay on the 15th.

Please remember that delays in the mail or problems with technology can cause you problems so don’t wait until the 15th to try to make a payment. It’s due on the 1st. I get too many phone calls from clients on the 15th of the month saying “my online access isn’t working and my payment is due today”. Paying your mortgage on time during a Chapter 13 is critical so please pay on the 1st so there aren’t any issues.

It is very likely that you will not be able to pay online. You may have to pay by phone or by check during a Chapter 13. That’s ok if you allow yourself time to pay. Pay on the 1st.

What’s the process if I miss a mortgage payment during Chapter 13?

By filing a Chapter 13 bankruptcy, you get the protection of the “automatic stay”. This stops all creditors from proceeding in any collection efforts against you. If there was a pending foreclosure action, it is stopped automatically. In order for a creditor to take any action against you during a Chapter 13 bankruptcy, that creditor would need to request permission from the bankruptcy court. We call this a Motion for Relief from the Automatic Stay or simply a Motion for Relief.

If a creditor has good cause, the bankruptcy court will grant a Motion for Relief. Generally, when it comes to mortgages, this comes up when you miss mortgage payments. The creditor will argue that by not paying the mortgage payments, you are harming the creditor and they need to proceed with foreclosure. That puts you in a bad position if you miss your mortgage payments. There are normally ways that you can fix it, but it’s very important to avoid getting behind in the first place!

Before we talk about the solutions, let’s talk about the process. It’s important to recognize that every bankruptcy district and every bankruptcy judge handles the process slightly differently. This is not intended to be a substitute for contacting your Chapter 13 attorney. In fact, that should be your first call if you miss a payment. Instead, this is an overview of the general process that applies when you miss mortgage payments during a Chapter 13.

What is a Motion for Relief from Stay?

In order for a creditor to take any action against you during a Chapter 13 bankruptcy, that creditor would need to request permission from the bankruptcy court. We call this a Motion for Relief from the Automatic Stay or simply a Motion for Relief. If you miss mortgage payments, a mortgage company can file a Motion for Relief from Stay. If this motion is granted, you would no longer have the protection of the bankruptcy and the mortgage company can proceed with a foreclosure. For those who want to keep their house, you can see why you need to get ahead of this.

Most mortgage companies will not file a Motion for Relief for one missed payment. So if you can catch up on that missed payment before your next payment is due, you should ordinarily be ok. If you get two months behind, many mortgage companies will file the motion. If you get three months behind, almost all mortgage companies will file the motion. This is not a license to miss payments. Every payment you miss makes the problem harder to solve. You need to be proactive and speak with your Chapter 13 attorney as soon as you know this will be an issue.

When a creditor files a Motion for Relief, the court schedules a hearing. If you do not resolve the issue with the creditor prior to the hearing, the judge will have to decide if the mortgage company should be allowed to proceed with foreclosure. You may have to testify at this hearing if the matter is not resolved.

If a Motion for Relief is filed in your case, it is always best to resolve the Motion ahead of time.

What do I do if I know I’m going to miss a mortgage payment during Chapter 13?

Contact your lawyer immediately. In most cases, your lawyer will not be notified when you miss a mortgage payment during a Chapter 13. If you don’t call,  your lawyer would have no way of knowing you’re having an issue. Many times people wait until the Motion for Relief is filed. This can be a problem because the further you get into your issue, the harder it is to fix.

If you are able to catch up on your payments, you should. If you cannot, be honest with your lawyer. Many times our clients tell us they can catch up when they cannot. We need to know these things. If you can’t catch up on the payments, we may have other solutions, but I need to know that.

What do I do if I missed a mortgage payment during Chapter 13?

Contact your lawyer immediately. Don’t wait until it’s too late!

There are a number of ways that we can fix a missed mortgage payment. Whether these options are available to you depends on a number of factors:

1. Your mortgage company;
2. Your specific bankruptcy district;
3. How far behind are you?;
4. Your income and ability to repay;
5. Whether you want to keep the house;
6. Is this the first time you missed a payment?;

The fact that there are so many factors emphasizes why calling your lawyer is so important. There are a number of different things to consider when coming up with a solution.

How can I fix my Chapter 13 if I missed a mortgage payment?

Here are some of the things we have done to solve the issue:

1. Catch up on your payments: The easiest option in most cases is to simply catch up with your missed payments. This works best when the creditor hasn’t filed a Motion for Relief. Unfortunately, many creditors will not withdraw the Motion voluntarily. If you wait until the Motion is filed to catch up, you may have to attend a hearing.
2. Enter into a repayment agreement with the creditor: Some creditors will allow you to catch up on the missed payments over time. For example, you may enter into a 90 day repayment or 6 month repayment. The problem is that you have to make your current payments on top of the catch-up payments. This can be expensive and difficult for many people.
3. Amend your plan: Amending your Chapter 13 plan is one of the more common ways to deal with missed payments. By amending your plan, we can restructure the entire plan and make changes as needed. This allows you to catch up, but can also allow you to make other adjustments. For example, you can decide to surrender a house you were originally trying to save. This can make your payment more affordable. On the other hand, sometimes this requires creditor approval. It may also make your plan payment go up making it harder to make payments.
4. Request a mortgage modification: Mortgage modifications are great when you can get them, but they are notoriously difficult to obtain. Mortgage companies will make you jump through hoops. There’s also no guarantee you will get approved. If you can get one though, it would solve your issue.
5. Convert to Chapter 7:  Sometimes we try to save a house in a Chapter 13 and it just becomes too difficult or too expensive. If you decide you’d like to surrender your house, you may be able to convert to Chapter 7. This would also stop you from having to make payments to the trustee. Don’t worry, you can normally have several months more (maybe a year) in the house for free – without making mortgage payments.
6. Dismiss and Refile: Sometimes the above solutions don’t work. In that case, it may be best to simply wait for the trustee to file a Motion to Dismiss and let the  judge to dismiss your case. This will allow you to potentially re-file a Chapter 13 when your financial situation improves. This may give your new Chapter 13 a chance at success.