Missing Mortgage or Association Payments During Bankruptcy

The filing of a Chapter 13 has an interesting effect. It consolidates and reorganizes all of your personal debt into one payment to the trustee each month. The analysis that goes into this deals with all of your expenses, income, assets, and debt to determine the payment. The payment can go up if it includes payment for certain secured debt in the plan, like a car of mortgage. This can help debtors that struggled to manage those payments heading into the bankruptcy itself. Problems sometimes arise, though, when payments to a homeowner's or condo association, mortgage, or car are scheduled to be paid outside of the plan and the debtor defautls.

In these scenarios, the protection afforded the debtor by the automatic stay prevents the secured creditor, whether it be the association, mortgage company, or car company, from immediately pursuing their normal default remedies outside of the bankruptcy. As such, these creditors, upon default, will contact the debtor and/or their attorney to seek resolution to the default. They can ask the debtor to reconcile the difference, and this is probably the most common remedy. The new debt from the default has been incurred after the filing of the bankruptcy, so modifying the Chapter 13 plan to include the debt is not an option. If the debtor cannot pay the default or work out some payment arrangement directly, this leaves the creditor with two main options.

First, the creditor can immediately seek to have the automatic stay lifted. They file a motion to modify the stay and remove that protection for the debt. They can then attempt to pursue their remedies outside the bankruptcy. The filing of this motion can often lead to the second, more common option: the agreed order, sometimes also called a default order. These orders structure out a payment plan for the debtor to follow and often include "no-miss" language in them that provides for an automatic modification of the automatic stay if the debtor defaults for a certain period of time. This order requires court approval and is often negotiated between the debtor's and creditor's attorneys prior to seeking court approval.

Of course, the best solution is to keep your bankruptcy attorney apprised of all situations in your case, especially if you expect to fall behind on your payments. There are solutions to these problems; the first step in reaching these solutions is to contact your bankruptcy attorney.

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