When consumers have been overwhelmed by unsecured debt or have fallen behind in mortgage payments, they may consider filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy allows a borrower to make up mortgage payments that they are behind over a 60 month plan. A chapter 13 can also eliminate unsecured debt depending on the debtors income and household size.
In order for creditors to get paid in a Chapter 13 bankruptcy they must file a proof of claim with the bankruptcy court. A proof of claim consists of a form indicating the amount and type of debt owed and listed the creditors name and address. Additionally, the creditor must provide some kind of evidence showing that the bankruptcy filer actually owed the debt. Additionally the bankruptcy code requires mortgage companies to file notices of any changes in mortgage payments while in Chapter 13 bankruptcy. The rules were amended in 2011 to significantly impact the proofs of claims required to be filed by mortgage companies under rule 3002.1.
It is always helpful when mortgage creditor files its proof of claim in a timely manner, both to protect its rights and to inform the bankruptcy trustee as to the amount of the pre-petition arrearage and the amount of the ongoing monthly payment. With that said, more often than not a mortgage creditor drags its feet in filing proofs of claims which cause a delay in all creditors getting paid and a debtor chapter 13 plan being confirmed.
Changes to the Federal Rules of Bankruptcy Procedure which became effective in late 2011 greatly increased the information which must be provided in a mortgage proof of claim. It is now required that an escrow account statement be provided and the rules also now require notices of post-petition payment changes be filed at least 21 days in advance of a payment due date and that notices of post-petition fees and expenses be filed.
The 2011 rule changes also attempted to address problems relating to the status of a loan as the Chapter 13 plan concludes. Debtors reported numerous instances where the debtors believed they were current on their mortgage and the lender did not agree. Debtors would complete their bankruptcy case only to find themselves in foreclosure all over again. The Rules now provide that a Trustee (or a debtor) is to file a notice of final cure payment once all plan payments have been made. The lender is then required, within 21 days, to file a response which states whether the lender agrees that the pre-bankruptcy arrearage has been cured and whether the lender believes the post-petition payments are current. Trustees may also file a motion to deem to mortgage to be current. Such a motion seeks a Court order that the mortgage is deemed paid in full through a date certain. Mortgage lenders must continue to monitor a chapter 13 case to its conclusion to protect its rights.
Now that you have a background of the bankruptcy rules, you can now see why Wells Fargo agreed to pay 81.6 Million dollars to home owners who had previously filed for chapter 13 bankruptcy. Wells Fargo failed to file proofs of claims in a timely fashion and failed to notify debtors of when their mortgage payments were changing due to adjustable rate mortgages or changes in escrow payments. In Washington State changes in payments are quite common as the property values are on the rise which causes escrow payments (property taxes) to go up. Wells Fargo isn’t the only big lender to violate the bankruptcy code recently. Chase bank agreed to pay 50 Million to homeowners for similar violations back in May 2015. If you are a Wells Fargo homeowner who has filed for chapter 13 bankruptcy in the last couple years, be on the lookout for a settlement letter and funds soon.
At the end of the day, these big banks are going to have to spend millions to get compliant with the current laws, and if they can’t, they will continue to be penalized and homeowners will continue to benefit by being awarded damages.
If you are facing foreclosure sale and you live in Washington State, give Symmes Law Group a call at 206-682-7975 to learn about your options to stay in your home and prevent foreclosure.