If you are behind on your mortgage payments bankruptcy can help. If you can afford to pay back the arrears over time in a Chapter 13 plan of reorganization, one of the questions you may have is whether you will have to pay interest on the missed mortgage payments in your Chapter 13 plan.
Your Chapter 13 plan can last three to five years spreading your missed mortgage payments out to make them affordable. The length of the Chapter 13 plan is determined by each individual's circumstances. If your household income is below the median for the number of people in your household, you can choose to be in either a three or five year
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Chapter 13 bankruptcy plan. If your household income is above the median for the number of people in your household, you will have to have a five year Chapter 13 bankruptcy plan. Normally, the longer the length of the plan, the lower your monthly Chapter 13 plan payment will be given that you have a longer period of time to repay the arrears. All of the pre-petition mortgage arrears will need to be accounted for in your Chapter 13 plan payment to be feasible. Remember, you will need to pay the arrears in your Chapter 13 bankruptcy case on top of your regular mortgage payments.
Normally, when your mortgage lender files a proof of claim in your Chapter 13 case, they include the pre-petition arrears, interest and penalties for late payments, escrow payments, and attorney fees to review and file a proof of claim. Some mortgage lenders include property inspections in the pre-petition arrears. Note that pre-petition interest for the late payments is already included in the arrears. Almost all deeds of trust securing payment of your mortgage do not include a provision that requires you to pay interest on the mortgage arrears in bankruptcy. Not having to pay interest on the arrears while paying them back in bankruptcy will save you thousands of dollars.
Chapter 13 bankruptcies allow you to pay the arrears off at zero percent interest unless the underlying contract or deed of trust indicates that the mortgage lender is allowed to collect interest on the interest payments. Bankruptcy is a powerful tool in reorganizing and eliminating debts while still keeping your house and vehicles. You may also be able to pay less for a car loan while catching up on your missed mortgage payments.
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