When Bankruptcy Rule 3002.1 was enacted in December 2011, its purpose was to protect homeowners in a Chapter 13 case by requiring mortgage lenders to confirm that their payments were up to date. Now it appears that it is being used to prevent these homeowners from receiving their discharges after their case concludes. It is a tricky situation that has divided courts across the country.
Rule 3002.1 explained
Congress and the U.S. Supreme Court enacted the rule to deal with mortgage banks that were, unbeknownst to the homeowners, adding fraudulent fees for handling mortgage accounts during Chapter 13 cases. Once a case concluded, the lender would demand payment of these ‘outstanding’ fees. If the homeowner could not pay, foreclosure proceedings began. In some cases, they were forced into another bankruptcy to deal with the staggering new debt load.
Once Bankruptcy Rule 3002.1 was passed, any changes or additional fees applied to the debtor’s mortgage account had to be reported to the bankruptcy court. When the bankruptcy case concluded, lenders also had to indicate whether all mortgage payments had been paid during the bankruptcy.
By holding lenders accountable in this manner, bankruptcy courts could ensure that homeowners did not lose their opportunity for a new beginning. However, some Chapter 13 trustees are applying Rule 3002.1 in a way that its original advocates did not anticipate.
An unexpected outcome
The rule calls for Chapter 13 trustees to receive an official bank-prepared document detailing the homeowner’s mortgage payment history. Sometimes, this document revealed missed payments and even cessation of all payments due to financial hardship, which result in the homeowner being denied their discharge.
This was happening because homeowners in a Chapter 13 bankruptcy who wanted to retain their family dwelling had to keep up their mortgage payments. When the Chapter 13 plan concluded, some homeowners who had missed mortgage payments before filing discovered that the trustee was refusing to certify completion of the repayment plan due to those unpaid installments.
So what can you do if you own a home and intend to file for Chapter 13? To protect your right to a discharge, you must maintain all mortgage payments during the three to five year repayment period. If there is ever a point when you think you might miss a payment, then contact your New York bankruptcy attorney, who may request that the court extend the repayment period to allow you time to catch up, or recommend that you convert to Chapter 7. When you face potential complications under Bankruptcy Rule 3002.1, your attorney is your best source of guidance. Contact the law offices of Jayson Lutzky if you have any questions regarding bankruptcy. Mr. Lutzky offers free in-person initial consultations at his Bronx office in the Morris Park neighborhood. Call 718-329-9500 to set up your consultation or visit www.MyNewYorkCityLawyer.com to learn more.