Many people declare a Chapter 13 bankruptcy because doing so pauses mortgage foreclosure and can allow debtors to retain their homes. If you are a debtor considering bankruptcy for this reason, it is important to understand what happens to your mortgage at the end of a Chapter 13 bankruptcy in New Jersey.
The experienced attorneys at Gillman Capone can help you understand and navigate your mortgage obligations after a Chapter 13 bankruptcy discharge. We can guide you through every step of the process to ensure you emerge from bankruptcy ready to take advantage of the fresh start it provides.
A Chapter 13 bankruptcy allows you to reorganize your debts and repay as much as you can over a three-to-five-year period. You submit a plan of reorganization to the court that addresses all your outstanding debts, including your mortgage.
Any mortgage arrears are folded into your plan of reorganization and you will pay them over the term of your Chapter 13 bankruptcy. Your ongoing mortgage payments may also be part of the plan of reorganization and included in the check you send to the bankruptcy trustee every month. Alternatively, if you are currently up to date on your mortgage when you file bankruptcy, your monthly mortgage payment may be separate from the plan of reorganization, and you must continue to make the payment to your mortgage servicer.
If you follow the plan of reorganization, at the end of its term any remaining debt addressed in the plan is discharged, or erased. However, the mortgage lien on your home remains. Our New Jersey attorneys can advise you on how to address mortgage debt that remains after a Chapter 13 discharge.
Declaring bankruptcy provides protection against creditors. When you file with a bankruptcy court, it issues a stay on all creditors, including mortgage holders, immediately. However, a mortgage holder can petition the court to lift the stay. If you fall behind on your mortgage while you are making payments on a Chapter 13 plan of reorganization, the lender might seek permission to foreclose on your home or take other enforcement actions.
It is essential to notify your attorney if you are having difficulty keeping your mortgage current while you are in Chapter 13 bankruptcy. They can help you investigate options to keep your home or minimize your losses if you decide to surrender the home.
Once the bankruptcy court discharges your remaining unsecured debt, the mortgage holder is free to pursue legal remedies if you fall behind on your payments, including the potential for foreclosure.
Our New Jersey attorneys will work with you as the Chapter 13 plan of reorganization concludes to ensure you are prepared to manage your ongoing mortgage obligations post-discharge. When necessary, we can explore options like loan modification or refinancing to help you stay current and keep your home.
When you have made all the monthly payments required under your Chapter 13 plan of reorganization, the bankruptcy trustee will issue a Notice of Final Cure Payment to your mortgage lender. They must file this notice within 30 days of your final payment under your plan of reorganization.
The notice informs the lender you have made the final payment as agreed and satisfied your obligation. It states that you have cured any default on a debt secured by an interest in your principal residence, which means that the lender cannot foreclose on the basis of unpaid mortgage arrears that were included in the plan of reorganization.
The lender must file a response to the notice within 21 days of receiving it. If the lender believes there is an amount outstanding, it must itemize them in its response. If you disagree with the lender’s assessment, our Chapter 13 attorneys can file a motion in the New Jersey bankruptcy court to force the mortgage lender to prove the underpayment or discrepancy.
After the bankruptcy trustee receives your final payment, 11 United States Code § 704 requires them to audit all the transactions included in your Chapter 13 plan of reorganization. During this audit, the trustee may ask you to provide tax returns and other documents. This is not something to worry about; it is a positive final step in the bankruptcy process as long as you have been honest and transparent.
If mortgage arrears and/or current mortgage obligations were part of your plan of reorganization, the trustee will scrutinize both the charges and your payments. They will bring any issue with the mortgage to the lender and your bankruptcy attorney.
Trustees often find problems with mortgage loans when they review a bankruptcy. Many mortgage lenders sell the rights to service their mortgages and these can lead to errors like misapplied payments that can cause unwarranted late fees. Problems can also arise when the mortgage lender makes administrative errors.
If the audit discloses an accidental oversight or misapplication of a payment, these can often be resolved through negotiation. Thorough documentation of your payments, bank statements, and the notices you have received from your lender and mortgage servicer are necessary to prove you made payments as required. More significant errors may require a hearing before the bankruptcy judge.
It is essential that you keep your mortgage payments current both during and after your Chapter 13 discharge of debt. If the final audit reveals that the mortgage lender provided appropriate notice of legitimate post-petition fees that you have not paid, you should make those payments immediately to avoid a default.
If your current mortgage payments were included in your plan of reorganization, you must start making direct mortgage payments yourself. Once you receive the trustee’s Certificate of Final Payment, you can restart automatic mortgage payment deductions from your bank account if you wish.
If you are worried about your mortgage after Chapter 13 bankruptcy in New Jersey, the experienced attorneys at Gillman Capone are here to help you through the transition. Bankruptcy is meant to give you a fresh start, and we will do all we can to ensure you take full advantage after the difficult work of completing your plan of reorganization. Contact us today to discuss your concerns about your mortgage and Chapter 13.
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