Chapter 13 and the Fees of Foreclosure

Chapter 13 of the Bankruptcy Code allows debtors with a regular income to make a monthly payback plan over 3 or 5 years to pay their unsecured debts. What unsecured debt is not paid off during the payback plan is discharged at the end of the plan.

graph shows U.S. foreclosure trends (quantity ...

graph shows U.S. foreclosure trends (quantity of the available foreclosures) (Photo credit: Wikipedia)

Keeping or Surrendering Secured Assets in a Chapter 13

If you want to keep any secured assets during a Chapter 13, you must keep making payments on the monthly charges of the secured asset in a timely manner. The arrears you are behind on any secured debt should be included in your plan.

If you decide you do not want to keep a secured asset after filing the petition for a Chapter 13, any of the deficiencies you owe, the amount you owe more than the current value of the secured asset, will be discharged at the end of the bankruptcy. Liens on any secured asset will survive a bankruptcy because they cannot be discharged in bankruptcy. That means the only way a mortgage company can receive any money for the asset if a filing debtor does not want to keep the asset is by repossessing or foreclosing on the asset and sell the asset for the market value.

Post Petition Claims Like Foreclosure Fees

Post petition claims will not be discharged in a Chapter 13 bankruptcy. Foreclosure fees are an example of the types post petition claim that a Chapter 13 will not discharge.

There are a number of fees that can arise from foreclosure on property, and if they happen post petition, they cannot be discharged, and you are obligated to pay them. Some of these post petition foreclosure fees can be:

  • foreclosure fees made by an attorney for doing the legal work in the foreclosure;

  • foreclosure fees for the courts and/or sheriff for holding an auction;

  • other foreclosure fees made to get into a court, if applicable; and

  • a variety of other foreclosure costs, including closing costs, delivery fees, and the like.

Foreclosure fees can run up into the thousands of dollars. Some states have laws limiting the amount a mortgage company can charge for foreclosure fees. Foreclosure fees can be seen as regressive costs that can hurt small borrowers more than bigger loans.

Can You Get Rid of Foreclosure Fees?

There are times when you can negotiate reducing or even eliminating foreclosure fees, but there would need to be an incentive for the lenders to do so. If you can get your lender to agree to a deed in lieu of a foreclosure, that would eliminate the need for foreclosure, thus eliminating the need for foreclosure fees.

Filing a type of bankruptcy like a Chapter 13 can be a very complicated legal process to go through. When a foreclosure happens during the bankruptcy process, the event can complicate the process even more because you are adding another legal entity, foreclosure law. In these cases, it is wise to consult with an attorney or attorneys that can advise you about the legal process of bankruptcy and foreclosure law.

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