MORTGAGE, ESCROW AND BANKRUPTCY
When filing for bankruptcy and owning a home, it is important for a debtor to understand they will still have an obligation to the mortgage lender. With Chapter 7 bankruptcies the obligation is fairly obvious, the debtor will continue to make the normal monthly mortgage payment to the lender, but in a Chapter 13 bankruptcy, the debtor’s obligation may be less obvious.
If you are in a Chapter 13 bankruptcy, the expectation is the debtor will remain current on any mortgages they have on the home. If the debtor does not remain current on the mortgage payment the mortgage lender can motion the court to lift the stay so the lender can proceed with collections measures, which usually means initiating a foreclosure proceedings.
If a homeowner’s mortgage has an escrow account, the mortgage payment can fluctuate. An escrow account is used to hold funds managed by the mortgage company for possible expenses including insurance premiums and property taxes. The mortgage lender manages the escrow account and makes the payments on the homeowner’s behalf as they come due. The reason the mortgage payment fluctuates is not because of the bankruptcy. The fluctuation is because the homeowner has an escrow account and insurance premiums and property taxes fluctuate over time.
If the homeowner’s escrow account is short, due to higher expenses, the mortgage lender will increase the homeowner’s mortgage payment, to make up for the shortage. The mortgage lender is allowed to collect enough to pay the homeowner’s expenses and a possible cushion of funds.
The mortgage lender calculates your annual tax and insurance payments for the year and adds that amount to your monthly mortgage statement. The lender deposits a portion of the homeowner’s monthly payment in the escrow account to cover the insurance and taxes. The lender can require an “escrow cushion” to cover expected costs.
The bankruptcy does not cause your monthly mortgage payment to increase. If the mortgage company does increase the mortgage payment, it is likely due to the homeowner’s escrow account and the mortgage lender anticipating a shortage of the escrow account. Regardless, of the reason for the increase of the mortgage payment, the homeowner does need to remain current on the mortgage payments and make the payment as indicated by the mortgage lender.
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Debtors in a bankruptcy can retain their home, but the debtor is responsible for making post-petition payments to the mortgage. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com and let us help you get your life back.
