30 May Resolving a Motion for Relief – A Costly Exercise
Many Chapter 13 cases arise from mortgage payment problems. A significant number of Chapter 13 debtors enter into bankruptcy with a mortgage arrearage and they use the arrearage cure mechanism of Chapter 13 to stop the foreclosure process and to pay back the missed mortgage payments over time.
Unfortunately many of the budget and cash flow problems that existed prior to bankruptcy may continue to exist after your Chapter 13 has been filed. In my Atlanta bankruptcy practice I would estimate that more than half of my homeowning Chapter 13 clients fall with post-petition mortgage payments. In other words, while they are curing their pre-petition arrearages, they fail to make all of their post petition mortgage payments. In the Northern District of Georgia, by the way, mortgage payments are tendered directly to the lender, and are not paid through the Chapter 13 trustee.
So what happens to a direct mortgage pay debtor who falls behind post-petition? Frequently once the post-petition arrearage approaches 2 or 3 months, the mortgage lender will file a Motion for Relief from Stay – a pleading in which the mortgage company asks the judge to lift bankruptcy protection and allow the lender to proceed with foreclosure.
In my jurisdiction, judges are reluctant to grant these motions on the first post-petition delinquency. In the Northern District of Georgia, the judges will almost always fashion a compromise whereby the debtor can cure his post petition arrearge over 6 to 12 months. This means, of course, that the debtor will need to continue to pay trustee payment, continue to pay his on-going mortgage payment, and also scrape together and extra $200, $300, $400 or more to cure the post petition arrearage.
Since the judges will almost always create this type of relief, the debtor bar and the mortgage creditor bar rarely litigate Motions for Relief the first time they are filed in a particular case. Instead, we enter into Consent Orders that provide for the type of cure that the judge would most likely fashion.
In addition to the cure amounts, counsel for the mortage lenders will usually add between $500 and $750 as attorney’s fees for their trouble in filing and pursuing the motion for relief. Not surprisingly, Chapter 13 debtors will not be very happy about paying an extra $500 as part of their post-petition mortgage cure, but they most often agree to this charge. If they do not, they run the risk of an adverse ruling if the judge hears the case and/or additional fees from their own lawyer for the 5 to 6 hours of billable time that these mass motion calendars entail.
The bottom line: if you file Chapter 13 in a direct mortgage pay jurisdiction like the Northern District of Georgia, make every effort to keep you post-petition mortgage payments current. Otherwise you will be facing even more stress to your budget and extra legal fees.
Jonathan Ginsberg, Esq.
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