That which matters is when your payment is posted to your account in the moth it is due. For example, if the payment is due in December, it must be posted in December.
While your Chapter 13 payments are not reported to the credit bureaus, when you apply for a mortgage (refinance or purchase) while in a Chapter 13 Plan or within two years of your bankruptcy Discharge, your Chapter 13 payment history will be reviewed by the underwriter. This review will consider your Chapter 13 payment with the same weight as a mortgage payment. Just one 30-day late payment will disqualify an otherwise approvable loan applicant.
Exactly What Is A 30 Day Late Payment?
To illustrate, let’s say your payment is due on December 25th. Your payment has always been made on the 25th. In fact, your November 25th payment was received by the Trustee and posted in November as it was since your first payment. However, your December 25th payment was not posted until January 2nd. Oops, you now have a 30-day late payment.
The Payment Was Sent the Same Day as Always
We understand. However, the underwriting guidelines do not understand accidental, postal or electronic delays. Indeed, the system can be harsh. Being armed with this knowledge allows you to plan for the unexpected.
Rehabilitation Expectation – Minimum of 12 Months On-Time Payments
A minimum of twelve consecutive months of on-time payments immediately prior to applying for mortgage credit is essential for approval. This supposes that all payments have been posted on time with the Trustee’s office. However, there can be an exception of a 30-day late during the payment period so long as that isolated incident is not within the last twelve months. The exception of a 30-day late payment or an interruption of on-time monthly payments must be documented and sourced as completely outside the control of the debtor.
The Blizzard Made My Payment Late
A few years back, one of my prospective Chapter 13 home buyers diligently worked to get into a position to be approved for a new home loan. By way of background, at the time he lived in a cabin at St Mary’s Glacier. That year, there was a particularly severe snow event which left my prospective client snow-bound for several days. Still, his payment to the Trustee was only one day late. We argued that this was an Act of God and entirely out of my prospective client’s control. This held no sway with the underwriter and my prospective borrower was not approved. In the interest of full disclosure, this prospective client had another 30-day late payment about 15 months prior to the blizzard. The ‘Act of God’ defense might have worked had the previous late payment not been of record.
Automatic Bill Pay – Be Aware
Those of us that use on-line bill pay through our credit union or bank love the convenience. No stamps, no envelopes and no checks are but a few of the nice features. While in a Chapter 13 bankruptcy repayment plan, set your payment date early enough so there is sufficient time for the Trustee’s office to 1) receive your payment and 2) post your payment. Be aware of Federal holidays and back your payment date up a couple of extra days to make sure you never have a Chapter 13 late payment.
The Trustee’s Staff Said a Late Payment Is OK
We understand. While a single late Trustee payment (or two) will generally not cause for a Chapter 13 to be problematic or Dismissed, keep in mind, the Trustee is not your mortgage loan originator or mortgage lender.
The Trustee said it is ok do pay my Plan payments ahead of time. Talk to your attorney, this could be a problem.
What Is the Take Away of This Post?
For those with payments due to be in the Trustee’s office near the end of the month, we strongly suggest that you mail your payment a few days early every month to help ensure the payment is posted in a timely manner. Better yet, set the bankruptcy payment to be made via payroll deduction. If payroll deduction is not available, schedule an automatic monthly payment via your on-line banking.
Unpaid Mortgage Payments Can Cause a Discharge to be Denied
As discussed above, on time mortgage and Chapter 13 payments are essential to a successful plan. Let’s say one is nearing the final month or so of their Chapter 13 Payment Plan and the Trustee learns the mortgage payments, which were to have been paid outside the Chapter 13 Plan, were not paid as agreed. The Discharge can be denied and instead after all this time, the case is Dismissed. A Dismissed case is a failed Chapter 13 from a mortgage underwriting standpoint.
We wish you success with your Chapter 13 Payment Plan!
Financially Speaking™ James Spray, RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 |December 2, 2013 | Updated January 10, 2018 | Copyright 2013-2018
Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part provided you give complete attribution to James Spray.