Often times Chapter 13 bankruptcy is filed to prevent foreclosure. Filing Chapter 13 bankruptcy stops the sale of your home and allows you the opportunity to make up the past due amount on your mortgage at the time of filing through the Chapter 13 plan. However, in addition to making up the past due amount through the plan, you must remain current on post-petition mortgage payments in order to keep the bankruptcy stay (protection) in effect. Depending upon where you reside in Arizona, you may or may not pay your mortgage in your Chapter 13 plan. In Pinal and Pima counties, your mortgage is paid through the Chapter 13 plan if you are behind on your mortgage at the time of filing. In Maricopa County and most other counties in Arizona, you will make your mortgage payment directly to the lender outside of your Chapter 13 plan.
In counties where your mortgage payment is paid through the plan, you must be current on your plan payments. Failure to make plan payments will result in dismissal of your case. In other counties in Arizona where the mortgage company is paid directly outside of the plan, you must remain current on your Chapter 13 plan payments and your post-filing mortgage payments. Again, failure to make plan payments will result in dismissal of your case and collection efforts to ensue. In addition, if you fail to pay your mortgage company directly outside the plan, they have the right to lift the bankruptcy stay (protection). If stay relief is granted, your mortgage company may foreclose upon the property. Therefore, it is essential that you do not default on both your plan payments and your mortgage payments (if paid outside the Chapter 13 plan).
What happens if an unexpected event occurs during the 3 to 5 years that your Chapter 13 bankruptcy is in effect? Your income may decrease, expenses may increase, or there may be other circumstances outside of your control that lead to you default on either your plan payment or your mortgage payment, or both. If you default on your plan payments you may be able to file an amended plan making up the past due plan payment(s) over the remainder of the plan. However, you must have justification that is acceptable by the court.
What happens if you fail to make mortgage payments in a county where the mortgage is paid directly outside of the plan? If mortgage payments are missed after filing the lender has the ability to lift the bankruptcy stay and foreclose upon the property. Unfortunately this situation occurs quite frequently, but lenders are often willing to enter into a stipulation (agreement) to make up past due post-filing mortgage payments. However, these agreements often cause the stay to be lifted.
I strongly advise you avoid this scenario at all costs, as once the stay is lifted, you are no longer protected from collection activities from the creditor. If your circumstances have changed significantly enough that you cannot afford your plan payment or mortgage payment, or both, you may want to consider converting your case to Chapter 7 and surrendering the property.
If you are in default with your plan payment or any post-filing mortgage payment, you should consult with an experienced Phoenix bankruptcy lawyer to discuss your options. The attorneys of Ariano & Reppucci, PLLC are on call 24 hours a day, 7 days a week to answer your Chapter 7 and Chapter 13 bankruptcy questions.