Chapter 13 Mortgage & Car Payments

Introduction: Understanding Chapter 13 & Home and Car Payments as Secured Debts

Filing for Chapter 13 bankruptcy is a big step – a commitment to a repayment plan designed to get you back on track financially. It allows you to catch up on debts while keeping your important assets, secured debts like your home and car. But what happens to those payments during this process?

If you’re wondering about mortgage payments in Chapter 13 or how car loans in Chapter 13 are treated, you’re not alone. This guide will break down everything you need to know, offering clarity and peace of mind as you navigate this journey.

Chapter 13 and Mortgage Payments

What Happens to Your Mortgage in Chapter 13?

When you file for Chapter 13, your existing mortgage doesn’t disappear. Liens in bankruptcy generally don’t go away. You remain responsible for making regular monthly payments to your lender. These are called “post-petition” payments, meaning they occur after filing your bankruptcy petition. The crucial point is continuing these payments as they come due. Falling behind can jeopardize your case and potentially lead to foreclosure.

Falling behind can be incredibly stressful, so let’s focus on keeping those payments current. Remember, the goal of Chapter 13 bankruptcy is to protect your assets, catch up on late payments for your home (or car), and give you a chance to rebuild your finances.

Paying Your Mortgage During Bankruptcy: Key Considerations

Here’s what you need to know about making mortgage payments while in Chapter 13:

• Continue Regular Payments: As mentioned, consistent, on-time payments are essential.
• Direct Payment: Most lenders require you to make payments directly to them, rather than through the bankruptcy trustee. There are some districts in the U.S. (and a trustee or two in here in the Central District of California) who will insist on “conduit payments” where you pay for your ongoing house payments through the Chapter 13 trustee payment. Locally, at least, these are the exceptions and not the rule.
• Loss of Online Access: You may lose access to your lender’s online portal for viewing statements and making payments. This is standard procedure, as the trustee needs to review and approve all payments. Don’t worry; it doesn’t mean anything is wrong!
• Paper Statements: You might also stop receiving paper statements, as the lender is cautious of  inadvertently violating the automatic stay. If you prefer to continue receiving them, you’ll need to request that service from your lender.

Understanding Post-Petition Mortgage Fees

Beyond your regular mortgage payment, you’ll encounter additional fees associated with your Chapter 13 case:

• Trustee Fees: A small percentage (typically 5-11%, varying by district) of each payment goes towards administrative costs.
• Post-Petition Interest: Any interest accruing on your mortgage balance after filing bankruptcy must be included in your repayment plan. (this can apply to postpetition interest on other debts).
• Legal Fees: Sometimes, the mortgage lender will add their legal fees by a notice to inform the court.

Your lender should provide a clear breakdown of these fees each month. Double-check the amounts and due dates, and adjust your budget accordingly. It’s vital to understand all aspects of your financial obligations during this time.

Chapter 13 and Car Payments

Chapter 13 & Car Loans: A Similar Approach

Just like mortgages, car loans in Chapter 13 are handled similarly. You’ll typically continue making regular payments directly to your lender, plus any applicable fees. This is often referred to as a “direct pay” arrangement.

However, Chapter 13 offers potential options for car loans that you might not be aware of:

• Cramdown: If your vehicle’s value is less than what you owe, you may be able to reduce the loan balance to match the current value. (This requires meeting specific criteria.)
• Redemption: You can potentially pay off the entire remaining loan balance in one lump sum. (Again, eligibility requirements apply.)

These options can significantly ease your financial burden, but it’s crucial to discuss them with your attorney to determine if they’re right for your situation.

Avoiding Foreclosure & Repossession: Staying Current is Key

A primary benefit of Chapter 13 is its ability to protect your property. As long as you stay current on your payments – both mortgage and car loan – you get to keep your assets. However, missing payments can quickly jeopardize your case:

• Foreclosure: Falling behind on your mortgage could lead to foreclosure proceedings.
• Repossession: Missing car loan payments could result in repossession of your vehicle.

If you’re struggling to make ends meet, don’t hesitate to reach out to your attorney. They can explore potential solutions and help you avoid these devastating outcomes. Remember the “automatic stay” that goes into effect when filing for bankruptcy? That provides temporary protection from creditor actions, including foreclosure and repossession, giving you breathing room to create a repayment plan.

However, if you don’t make the car or house payments during your bankruptcy, you don’t get a free car or home; they will be able to get it back. So let your bankruptcy attorney know of any challenges during your case.

Navigating Direct Pay Cars & Loan Options

Many people find themselves in situations where they have direct pay cars, meaning their car loan isn’t included in the bankruptcy plan itself. This is common and doesn’t necessarily mean it’s a problem! You simply continue making payments as agreed. However, keep in mind the “cramdown” and “redemption” options mentioned earlier – these are worth exploring with legal counsel.

Resources for Support

Bankruptcy can be overwhelming, but you don’t have to face it alone. Here are some resources to help:

• National Association of Consumer Bankruptcy Attorneys (NACBA): https://nacba.org/
• National Foundation for Credit Counseling (NFCC): https://www.nfcc.org/
• Your Local Bankruptcy Attorney: A qualified bankruptcy attorney can provide personalized guidance tailored to your specific situation.

Conclusion: A Path Towards Financial Freedom

Chapter 13 bankruptcy offers a lifeline for individuals and families struggling with debt. By understanding how your mortgage and car loans are handled during this process, you can take proactive steps to protect your assets and rebuild your financial future. Don’t let the complexities overwhelm you – reaching out to a qualified bankruptcy attorney is crucial. They can provide personalized advice and help you navigate this complex process with confidence.