Chapter 13 Trustee
A Sacramento bankruptcy lawyer clarifies some reasons why your ongoing monthly car or mortgage payments are paid by your Chapter 13 Trustee instead of you...
The Bankruptcy Code provides that any default incurred prepetition by the debtor may be
cured through a chapter 13 plan. Anytime a Chapter 13 is filed the prepetition delinquency on a car or home must be paid by the trustee pursuant to your Chapter 13 plan. Whether the Chapter 13 filer or trustee pays the ongoing post petition payment to the lender depends on where you reside. It is this requirement that can add trustee fees at tune of a couple of hundred dollars a month to your Chapter 13 plan.
Bankruptcy courts in Sacramento, Redding, and Fresno require not only the pre petition arrears to be paid by the trustee but also the ongoing monthly payments because as one current judge remarked “anytime you depend on debtors to make payments directly to creditors you will greatly increase the amount of court time needed to settle payment disputes.” These disputes are generally prompted by the lender filing a request to pull the car or home out of bankruptcy protection because payments are late.
The reasoning of paying the ongoing payment to the trustee as part of the plan is that the trustee will know whether the payments have been made and will properly credit the filer’s balance on that property. Also if the filer is unable to make the payment and hence the plan payment the trustee must apply for dismissal of the Chapter 13 case thus allowing the creditor to assert the rights it had prior to the bankruptcy. By reducing the amount of court involvement in the disputes between creditors and debtors in court the general burden on taxpayers becomes less.
If the debtor fails to pay the Trustee any or all of the amount needed to satisfy the chapter 13 plan, the Trustee will immediately know of any default to the mortgage lender and if the problem is not promptly resolved, the standard chapter 13 plan provisions allow the Trustee to file a motion to dismiss the case. This means that the creditor can obtain relief without the expense of hiring an attorney to file a motion to lift the automatic stay. It also gives both the filer and the mortgage lender an advantage in that they will have access to the Trustee’s records electronically, which will give it access to such information as to when, and in what amounts, payments have been made.
The most glaring disadvantage to paying the trustee the monthly payment due to a lender is the fee a filer must pay the trustee. In order support operations the trustee generally charges $0.10 cents for every dollar paid to a lender. So if you’re behind on your house and are filing a Chapter 13 plan to catch up then not only do you pay say a $1500 mortgage payment to your lender you are paying $150 extra for the trustee to basically write the lender a check for that $150. In essence your monthly mortgage payment exclusive the cure amount becomes $1650. If you were struggling with just the monthly payment and cannot pay the extra $150 the court’s response is generally a declaration that your plan is not feasible.
While there are some concrete disadvantages to debtors paying the mortgage through a chapter 13 plan, there are also very concrete advantages to such a plan. The debtor avoids many of the typical problems with the mortgage lender in a chapter 13 case (e.g., payment history disputes, delay of contact with mortgage lenders and or their attorneys, additional late fees, and mortgage lender attorney fees). If the debtor’s chapter 13 plan allows for Trustee-directed mortgage payments, the information about when and how much of a payment has been made will be accessible by the creditors through electronic means. The debtor is also afforded with repayment opportunities in one single plan payment
An additional advantage to debtors when the mortgage payments are processed through the plan is that, at the time of discharge, an order can be entered in the plan to deem the mortgage current as of the date of discharge and, therefore, no additional costs, fees, or charges prior to that date may be levied against the debtor. Anecdotal evidence indicates this process has been utilized successfully by Standing Trustees in various parts of the country.
The Trustee will be required to handle situations in which the debtor makes an incomplete payment. In such a situation, the Trustee should refrain from sending a partial payment to the mortgage lender who may be confused by such a payment. Instead, the Trustee should hold the partial payments for disbursements, and contact the debtor’s attorney to have the debtor satisfy the scheduled payment amount. By doing this, the Trustee avoids a situation wherein either the filer is dismissed or the mortgage lender keeps the insufficient payment, but then files for relief from the automatic stay.
The Trustee is responsible for maintaining information on the fluctuating increases or decreases of the applicable interest rate, either through notice from debtor or lender. Placing a staff member in charge of monitoring the rates for mortgages is required. The Trustee must then make certain the debtor is aware of fluctuating increases or decreases in interest rate and adjusts the monthly payments accordingly.
If there is question about whether a mortgage payment has or has not been paid, the court will be able to rely on the Trustee to present thorough records detailing payment transaction information.
By removing the responsibility for post-petition mortgage installments from the debtors and placing it on the chapter 13 Trustee, the percentage of successful completion of chapter 13 plans will likely increase. The likelihood of default on the home mortgage would decrease and the amount available to distribute to all the creditors would be potentially increased. Even though the amount of work for the Trustee would also increase, the purpose of the bankruptcy law has been to serve debtors by aiding them in regaining financial control and financial security.
If you have questions regarding Bankruptcy in Sacramento please contact us at (916) 492-6020 in Sacramento or (916) 724-1690 in Roseville for a free consultation or visit www.bkanswers.com and we can connect you with one of our experienced Sacramento Bankruptcy Attorneys. After you have spoken with one of our Sacramento bankruptcy attorneys, we can schedule you for a free face to face appointment in an office location nearest you. Our team of Sacramento Bankruptcy Lawyers can assist you with all aspects of your bankruptcy or legal debt settlement case. If you have questions about filing a Chapter 7 bankruptcy, a Chapter 11 bankruptcy, a Chapter 13 bankruptcy, or would like to learn more about bankruptcy litigation, legal debt settlement, mortgage modification, lien stripping, cram down, stopping a foreclosure, wage garnishment, asset protection, discharging a debt, etc. we can help! We have bankruptcy attorneys located throughout California and Oregon who can assist you with all of your debt resolution questions. Please feel free to complete our free online bankruptcy evaluation and we can quickly determine if you are a qualified candidate for bankruptcy. We look forward to hearing from you, Sacramento and Roseville!
