Chapter 13 and Escrow Shortages
In a Chapter 13 bankruptcy, individuals who earn a regular income are able to adjust their debt. Those filing under Chapter 13 come up with a repayment plan that will allow them to make monthly payments to creditors without undue hardship. The Chapter 13 plan lasts for a term of three to five years, and must be approved by a bankruptcy court. Chapter 13 bankruptcy has a number of advantages; for instance, it may mean lower payments, personal property will not be sold as it may be in a Chapter 7 liquidation, and filing for Chapter 13 bankruptcy stops home foreclosure proceedings.
Often prior to filing a bankruptcy petition, a debtor has missed one or more payments for escrow items (the portion of debt that is overdue after missing payments is known as an arrearage). Previously, some mortgage providers, even after failing to object to the amount designated for monthly mortgage payments under a homeowner’s Chapter 13 plan, would ask for payment for an escrow arrearage within a short amount of time after the bankruptcy petition had been filed as part of mortgage payments. Immediate or nearly immediate repayment of these pre-petition escrow shortages could cause debtors to be unable to meet obligations under their Chapter 13 plan.