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What happens if the debtor falls behind with trustee, mortgage or auto payments in a chapter 13

Typically, in a New Jersey Chapter 13 bankruptcy, debtors are required to make monthly payments to a trustee, in addition to mortgage and auto finance payments, each of which are paid directly to the mortgage or finance company. Typically, in New Jersey, the trustee administers the trustee payments and ensures that the payments are made on a timely basis. Also, in New Jersey, the mortgage and auto finance company administer and ensure that the payments to their respective company are timely paid. In the majority of cases, due to financial issues or unexpected expenses, a debtor may fall behind with the trustee, mortgage or auto finance payments.

Opportunity to Settle Arrears

Typically, the chapter 13 bankruptcy trustee will permit the debtor to fall behind approximately three months with their trustee payments, depending on the trustee’s work load. In the event that the arrears continue, the trustee will file documents with the court requesting that the case be dismissed. In the event that the trustee files a motion with the court requesting to dismiss the case, the debtor has a right to respond and oppose the trustee’s request and possibly settle the matter with the trustee’s office. In other words, the debtor has an opportunity to settle the matter with the trustee by proposing to cure the arrears. The arrears may be paid by making a lump sum payment with the balance paid over a reasonable time period. It may be possible to resolve the matter by making a lump sum payment, with the arrears balance added to the trustee payment, over the life of the bankruptcy plan. In a nutshell, the debtor may successfully defend the motion and continue to proceed with the Chapter 13 case. If the motion cannot be resolved, the case will be dismissed.

Mortgage Payments

In a New Jersey chapter 13 bankruptcy case, the monthly mortgage payments that are due after the filing, must be paid directly to the mortgage company and not to the trustee. The mortgage company and their attorneys administer the monthly mortgage payments and ensure that the payments are made on a timely basis. Generally, the mortgage company will allow the debtor to fall behind two to three months with their regular monthly mortgage payments, until the attorney files the appropriate papers with the court requesting the enforcement of these regular payments. The number of months the debtor is permitted to default on the regular mortgage payments, depends on the mortgage company’s guidelines, their attorneys, and their caseload. The document that is filed with the court is called a, “Motion for Relief from the Automatic Stay”. The documents filed by the mortgage company request permission to proceed with a mortgage foreclosure action and through the bankruptcy case.

Similar to the trustee’s motion to dismiss a bankruptcy case, the debtor has a right to respond and defend the mortgage company’s motion. The responding document reflects the reason for the default and information regarding their ability to make payments in the future. The motion may be settled with the mortgage company’s attorney by curing the after filing arrears over a reasonable time period. Typically, the debtor is required to pay an immediate lump sum payment, with the balance of the arrears to be paid over 6 months, in addition to making their regular monthly mortgage payments. However, recently, the mortgage companies have agreed to permit some portion of the after filing arrears to be paid through the bankruptcy plan over the number of months remaining in the bankruptcy plan. If the matter cannot be resolved, the mortgage company will be granted permission to resume or commence a foreclosure action and sheriff’s sale.

Auto Financing Payments

In a New Jersey Chapter 13 bankruptcy case, auto finance payments may be paid directly to the auto finance company. Similar to a mortgage and/or a trustee default, a debtor may fall behind with their monthly auto finance payments. The after filing arrears are resolved in a similar fashion as the mortgage payment arrears. If the debtor is unable to resolve the matter, the auto finance company will be granted permission to repossess the auto. Please note that a debtor is permitted to pay their auto finance payments through the bankruptcy plan to the trustee.

In the event that the resolution of any of the matters reflected above require an increase in the trustee payments based on the settlement to the mortgage company, finance company or trustee, a modified plan must be filed with the court reflecting the in the monthly trustee payment.

Please note that if the debtor is unable to resolve any of the matters with the trustee, mortgage company or auto finance company, the debtor may file papers with the court to, again, resolve any matter and undo what was done. In other words, the debtor can file a ,”Motion to Reinstate the Case”, Motion to Reinstate the Automatic Stay regarding the mortgage or auto finance company.

Contact a New Jersey Chapter 13 Bankruptcy Attorney

If you are currently under bankruptcy protection in New Jersey, or you are considering filing for bankruptcy, you should consult with a skilled bankrtuptcy lawyer about your case. New Jersey chapter 13 bankrtuptcy attorney Robert Manchel of The Law Offices of Robert Manchel has 18 years experience helping families and individuals with their NJ bankruptcy matters. For a free consultation, call us today at (866) 503-5655.