Do Mortgage Arrearages Get Paid Interest in Chapter 13 Bankruptcy?

30 Oct Do Mortgage Arrearages Get Paid Interest in Chapter 13 Bankruptcy?

Chapter 13 bankruptcy is frequently filed to save a home from foreclosure by paying back the mortgage loan arrearage over time. Do you have to pay nterest on the mortgage arrearage claim to cure the default?

The arrearage claim includes all the past due payments on the principal and interest due under the mortgage loan. If you have to pay interest to cure the default, the creditor gets paid interest on interest.

Section 1322(e) was enacted in 1994 to overrule a 1993 U.S. Supreme Court decision named Rake v. Wade, which required debtors curing mortgage arrearages in chapter 13 to pay interest on the all the sums past due including principal, interest, late fees, escrow payments for taxes and insurance, and attorneys fees.

Now you cure a mortgage default in chapter 13 bankruptcy by paying what you would have to pay outside of bankruptcy. Interest must be required by the original loan agreement and must be permitted by state law.

BAPCPA did not change the law in this area. You must read the loan documents to determine if they call for interest on interest. If the documents don’t say interest must be paid, then no interest is paid on the dhapter 13 arrearage claim. If interest is required, then interest is paid by the chapter 13 trustee.

In Topeka, Kansas, the chapter 13 trustee discount rate is the interest rate used if interest is required. Most arrearages are paid no interest.

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Jill Michaux has helped Kansas consumers with debt problems for three decades. She and her partner, Mark Neis, are Topeka's only bankruptcy specialists, board certified in consumer bankruptcy law by the American Board of Certification. She help start the National Association of Consumer Bankruptcy Attorneys.
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