In Chapter 13, It’s Crucial to Make Mortgage Payments on Time

19 Jan In Chapter 13, It’s Crucial to Make Mortgage Payments on Time

It’s probably a no-brainer, but it’s critical to make your mortgage payments on time while you’re in Chapter 13. And by “on time,” I mean by the due date. The due date is the date that you payment is due. For most people, that is the first of the month. If you want to live on the edge, make them before your grace period ends, but no later than that. Making your payments so that they aren’t 30 days late is not the same as “on time.” Nor does it count to mail the payment on the due date—the mail box rule does not apply to mortgage payments. (In some districts, mortgage payments are included with your plan payment, and made to the trustee. In others, debtors make mortgage payments directly to the mortgage lender. It is the latter situation that I am addressing, although it is just as important to make timely payments to your trustee.)
It’s important to make the payments on time for several reasons. If your Chapter 13 plan says you will make your mortgage payments on time, failure to do so is a failure to abide by the terms of your plan, and can be cause to lift the automatic stay, or dismiss your case. It is also important if you are concerned with rehabilitating your credit rating after bankruptcy. But the most important reason is so that you don’t (eventually) lose your home.
Here’s what I see happening to my clients all the time. They start out okay, but gradually the payments come later and later in the month. At first, the payment is mailed in the first few days of the month and is applied about the 10th of the month. Then it’s mailed on the 10th, and sometimes received before the 15th, and sometimes not. So a late charge is added. That means the next month’s payment includes the late fee, so the payment is a little harder to make, and it’s often even a little later. Pretty soon you’re making your payment 20 or 25 days after the due date, and sooner or later, a payment is posted in the following calendar month.
What happens then is human nature or alchemy, or both. You either look at your statements, which reference the payment made in that month (which was actually a month late) or you look at your check register or bank statement, see that late payment, but think to yourself, “I made a payment this month.” It may not catch up with you for a while, but sooner or later you make another payment after the grace period, and now, as far as the lender is concerned, you are 60 days past due, and bad things start to happen.
I’ve seen this happen over and over. Clients tell me, absolutely sincerely, that they have made all their payments. But when I look at their records, the pattern emerges. If you aren’t naturally good at bookkeeping, and you’re under financial stress anyway, it’s easy to do.
You can prevent this kind of spiral by carefully and deliberately making your payments on time. Setting up an automatic bank draft is a good idea, but many lenders won’t do that while you are in Chapter 13. Make yourself a chart, and keep track of when you made your payments, and how (check, bank draft, etc.). Check with your lender and make sure they are posting them on time, too. And if you know your payments are getting further and further behind, and you just can’t help it, it’s time to go talk to your attorney about options to either modify your plan, or take your case in another direction.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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