Post-filing changes to your mortgage payment.

If you’re a Chapter 13 debtor with a mortgage, you have probably been noticing the occasional letter in the mail from your mortgage company with a form captioned either as “Notice of Mortgage Payment Change” and/or “Notice of Post-Petition Mortgage Fees, Expenses, and Charges”.

Debtors who have been in Chapter 13 for more than a year and a half might be a little more puzzled about these notices than newer Chapter 13 clients.  That’s because, before December 2011, these notices didn’t exist.  They are part of Fed. R. Bankr. P. 3002.1(b) and (c).

Apart from curing mortgage arrears, bankruptcy law doesn’t allow for the modification of the terms of a mortgage secured solely by a principal residence (11 U.S.C. ยง 1322(b)(2)).  That means that if you have an adjustable rate mortgage, a balloon provision, a high mortgage interest rate, or any other unfavorable term – you’re still stuck with those terms in a Chapter 13 bankruptcy.

So, when your interest rate adjusts periodically per the terms of the mortgage, your mortgage has and will continue to change throughout the life of your mortgage.  However, while in bankruptcy, and effective 12/1/2011, the mortgage company is required to file a Notice of Mortgage Payment Change” with the bankruptcy court.  These notices are also very commonly filed each year in cases where there is an escrow for property taxes.

Really, the notice of mortgage payment change doesn’t have a material impact on a bankruptcy case, other than it affords your attorney and other interested parties a chance to be aware of the change.  But, aware or not, you are responsible for making the new mortgage payment as reflected on the notice, unless you have grounds for objecting to that change (and successfully contest that change).

The second notice is for post-petition fees, expenses, and other charges.  I see these most often filed some time after a motion for relief from stay (which happens when a debtor defaults on post-petition mortgage payments) for late fees, penalties, and legal fees associated with the motion for relief.  I also see these for periodic property inspections.

Now, these fees are above and beyond your ordinary mortgage payment, and they will need to be paid separately – either soon after the charge is incurred, or at the end of your bankruptcy plan.  FRBP 3002.1(f-h) outlines the procedure for the mortgage company to make a statement concerning any remaining arrears that exist prior to you receiving your Chapter 13 discharge.  These post-petition charges are not paid by the trustee unless they are filed as supplemental proofs of claim.

So – it’s something to be careful of and watch out for, especially as you near the end of your Chapter 13 Plan.  Again, there’s nothing new about post-petition charges, but at least now you are receiving notices about them through the bankruptcy court – which is more notice than debtors got before December 2011.

Note:  The way we have constructed our new conduit mortgage provision does allow for the trustee to automatically make adjustments to plan payments to accommodate both a change to mortgage payments and a for additional charges.