Bankruptcy

How Should Mortgage Payments Be Made While in Chapter 13?

By Dana Wilkinson, Attorney at Law

In many Chapter 13 cases, the debtors are supposed to continue (or resume) making your regular monthly mortgage payments directly to your lender.  (In some districts, you make those payments through the Chapter 13 trustee, so I’m not talking to you folks.)  But if you are required to make the payments yourself, you need to know the best way of doing that.  Well, first of all, you should make them on time, but I’ve already been on that soapbox.  Now let’s talk about the mechanics of making those payments.

In my opinion, the best way of ensuring that your mortgage payments are made on time is to set up a bank draft with your mortgage lender.  But many, if not most, will not do that for you if you are in Chapter 13.  They want you to initiate the payment.  So, your choices are to send a paper check or money order, to send an electronic check, or to wire the payment through some third party, like Western Union.  The trick is to choose a method of sending payments that will get there on time, and that you can prove the lender received.

When you send an electronic check, you can prove the money came out of your bank account, and because the lender sets up the transfer of funds, you can also prove that they received the money.  That is what you are looking for–the ability to prove BOTH that you made the payment and that the lender received it.  If you send a paper check, send it in a way that you can track when the lender receives it.  Any of the overnight carriers, or the Post Office’s priority mail with delivery confirmation option, are fine.  Don’t send it certified mail; it is slower and may cause your payment to be late.  With a paper check, again, you know when it clears your account, and if you have a mail receipt, you have the records to prove that you make the payment.  If you use a money order, you should send it the same way.  Understand that it will take longer to prove that a money order has cleared, but it can be tracked.

My least favorite way for my clients to make mortgage payments is through a third party electronic transfer.  The reason for that is that you can prove that you made the payment, but you cannot easily prove who received it.  You are relying on that third party to properly direct the payment and properly identify your account so that your payment is credited to you.  If a dispute ever arises, it can be difficult to track those payments.  Obviously, if your lender asks you to make the payments that way (and I knonw some who do) and the lender sets it up for you, you should do as they request.  But if you choose to use such services, be sure that you get the correct routing information from the lender, and check and double check that such information is accurately transcribed when you make your payment.

You should gather from what I’ve said so far that it is extremely important that you keep good records of when and how you make your mortgage payments, but I will go ahead and say it again.  It is EXTREMELY important that you keep good records of when and how you make your mortgage payments.  Make yourself a little chart, and keep track of how you sent your payments, when you sent them, and check to make sure they have been received.

Full post as published by Bankruptcy Law Network on January 27, 2010 (boomark / email).