Question Heloc in chapter 13 - bank threatening forecloser

[notreallyme]

I have a question regarding HELOCs in chapter 13. Our HELOC was included in our chapter 13 plan. The trustee has been making the plan payments on time, but we just received a warning letter that we have an outstanding balance and the bank will move to foreclose if we don't bring the account current. My question is - can the bank foreclose if the trustee is making plan payments? Are they even allowed to make this threat.

Additional background information that might be helpful. I thought everything was going OK. Our plan payments kept us on a tight budget, but we were more than halfway through. Our plan was filed on 5/17/2022. At that time, the bank filed a payment than what was higher than required based on the interest rates at the time. We didn't object as the plan would still pay off unsecured creditors 100% and any excess would go towards principal. Fast forward to 2023 - interest rates increased which increased our require interest payment. Our attorney contacted the bank and asked them to increase the payment amount submitted to the trustee - the trustee won't allow us to ask for a payment increase. I know that it is possible for them to increase the payment since our first mortgage did when property taxes and insurance costs went up in 2023. They increased their (first mortgage) payment to provide a higher escrow amount.

Well, the bank never asked for an increase, so in 2023 an arrears began to develop - now adding about $150 a month. We talked to our attorney again - he recommended either taking the HELOC out of the plan and just paying it, or alternatively paying an extra $150 a month outside of the plan. Unfortunately, the plan is taking full DMI so I don't have extra money in the budget to make separate payments. I could for a while, but would shortly drain our emergency stash. Also, I don't trust our banks accounting for the following reasons:

First, even though the trustee makes the submitted payments on time, the bank adds a $25 fee each month as a late payment penalty - they are basically saying the trustee payment at the end of the month (which they post generally on the 6th) was actually due on the 20th of the proceeding month.

Additionally, they have been applying all of the trustee payments this year to principal rather than interest, so they are saying the arrears is much larger than it would be if they applied the payments correctly. I am afraid that even if I make additional payments, they will still record the trustee payments as principal. Based on correctly applying the payments, the arrears now should be $1,200 but the bank shows $3,100.

I have talked to our attorney a couple of times, but his answer is always "well pay the arrears and take the HELOC out of the plan." He is not understanding that I want it in the plan because I don't have an extra $3,100 setting around and can't make an additional $150 payment. He says the trustee would lower our monthly payment by the amount in the plan, but this just shift what bucket the money comes from. It would be much better if an increased amount was paid from the plan. Even if more is shifted to the HELOC and away from unsecured, the unsecured would still receive 100% at around month 50 of our 60 month plan. Also, I like the stay protection of the plan and the final accounting the trustee does before discharge that will make sure the accounting on the HELOC is correct - I know there will be accrued fees, but there shouldn't be outstanding arears if the trustee is making payments per the plan.

I am calling the bank's loss mitigation department today (tried a few times yesterday but just got voicemail) and will also try again with our attorney, but it sounds like our attorney just want to do the easiest (for him) thing and increase our out of pocket expenses.

sorry for the long post, I just needed to vent.

[justbroke]

If your Chapter 13 Trustee is making payments to the bank, then that is called "included and paid inside the plan." A creditor cannot mark you late, charge you fees, or take any adverse action when the Chapter 13 Trustee is the one making the payments. Even if the Chapter 13 Trustee paid late, there is nothing the secured creditor could do except ask the court to force the Trustee to make adequate assurance payments or some sort of equal payments. The creditor should not be threatening foreclosure or anything in an active Chapter 13 where the secured property is being paid by the Chapter 13 Trustee. This would be a violation of the automatic stay.

But... that's not the case here. Your Chapter 13 Trustee is not paying the correct amount. A creditor is supposed to send an update to the Chapter 13 Trustee so that they pay the correct amount. I would say that this is on the creditor themselves.

The "easiest" thing is actually for the bank to notify the Chapter 13 Trustee that the interest rate increased! The Trustee can adjust the payments. This is especially true if your confirmed plan has the HELOC marked as an "ARM" and that the trustee will pay the adjusted amounts.

I don't know what to do with your attorney. The solution is so simple they can't see it. Contact the Chapter 13 Trustee and the bank. Maybe the two will talk and get it straightened out. Regardless, the bank should not be threatening foreclosure since this is property of the bankruptcy estate.

[notreallyme]

Thank you for such a quick response. Like always, you are very helpful.

That lines up with what I thought - we have been trying for a year to get the bank to increase their payment in the case. Our trustee is doing what he is supposed to - paying the requested amount. My solution to our lawyer was to continue to hound the bank to adjust their payments. When I get through to the mitigation department, I'll ask them again to raise the payments in their submission. I also just found the mitigation department email address. After I talk with them, I will send them an email documenting our conversation and again requesting that they raise the payment amount with the trustee. Trustee has already told our lawyer that I can't request a higher amount - it has to come from the creditor. After that conversation last year, our attorney just let it go and stopped contacting the bank.

[justbroke]

Typically a creditor does a new escrow analysis statement and sends that to the Chapter 13 Trustee. That analysis includes any adjustment in the interest rate (ARM) and any issues with escrow (shortages). Surprising that the bank hasn't been sending notices to the Chapter 13 Trustee.

I'm sure you'll get to the correct person. If not, try to find the office of the president of that bank/creditor. Many banks have a client realationship team in the executive office that handles major issues. I would say that this is a major issue.