What Happens If A Mortgage Payment Is Missed In A Chapter 13 Bankruptcy Case?

Missing a mortgage payment during a Chapter 13 bankruptcy case can have serious implications, but there are mechanisms within the bankruptcy process to address such situations. Chapter 13 is designed to help debtors catch up on overdue payments for secured debts, like a mortgage, through a structured repayment plan. Here’s what can happen and potential steps to take if you miss a mortgage payment during your Chapter 13 bankruptcy:

Immediate Consequences and Potential Actions

1. Risk of Foreclosure: While the automatic stay in a Chapter 13 bankruptcy temporarily prevents foreclosure, consistently missing mortgage payments can lead to the mortgage lender asking the court to lift the stay for their debt. If the court grants this request, the lender may initiate or resume foreclosure proceedings.
2. Trustee’s Response: The Chapter 13 trustee, responsible for overseeing your case and distributing payments to creditors, may also take action if you miss mortgage payments. This could include notifying the court of non-compliance with the repayment plan.

Steps to Address Missed Mortgage Payments

1. Communicate with Your Attorney: If you anticipate difficulty making a mortgage payment or have already missed one, contact your bankruptcy attorney immediately. They can advise you on the best course of action and represent you in any necessary negotiations or court proceedings.
2. Modify Your Chapter 13 Plan: If your financial situation has changed, making it impossible to keep up with your current plan payments, your attorney might suggest modifying your Chapter 13 plan. A modification can adjust your payment amounts or extend the duration of your plan (within the five-year maximum) to accommodate the missed payments.
3. Forbearance Agreement: In some cases, it might be possible to negotiate a forbearance agreement with your mortgage lender. This agreement temporarily reduces or suspends mortgage payments, allowing you to catch up on the missed payments over time. Any agreement with the lender must be approved by the bankruptcy court.
4. Refinance the Mortgage: Depending on how far along you are in your Chapter 13 plan and the status of your mortgage, refinancing might be an option. This would likely require court approval and sufficient income to support the new mortgage terms.
5. Convert to Chapter 7 Bankruptcy: If you can no longer afford your mortgage and other plan payments, converting your case to Chapter 7 bankruptcy might be an option. This would eliminate certain types of debt but might not save your home from foreclosure if you’re unable to make mortgage payments.
6. Dismissal or Hardship Discharge: In some situations, voluntarily dismissing your Chapter 13 case to pursue other options or seeking a hardship discharge (if you meet specific criteria) might be considered. A hardship discharge is more limited than a standard discharge and is rare.

Importance of Proactive Communication

The key to managing missed mortgage payments during Chapter 13 bankruptcy is early and proactive communication with your bankruptcy attorney and, through them, with the bankruptcy trustee and your mortgage lender. The sooner you address the issue, the more options you may have available to resolve it without losing your home.

Bankruptcy laws and procedures can be complex, and the best course of action often depends on individual circumstances. Working closely with a knowledgeable bankruptcy attorney can help you navigate these challenges and work toward a solution that aligns with your financial recovery goals.