A Question For Potential Chapter 13 Debtors – If You Weren’t Paying The Mortgage, Where Did Your Money Go?

If you are considering filing Chapter 13 to stay a foreclosure sale, you should expect your attorney and maybe even your trustee to ask this question: If you haven’t paid your mortgage in the last 12 months, where did all the money you earned go? Lawyers know that once a mortgage goes into default, the lender will not accept payments (except through a forbearance agreement or workout). So, there should be some period of time where a borrower can save some of the money that would otherwise be earmarked for the monthly mortgage payment. I always ask new callers where did their money go? It is alarming how many people cannot answer this question.

Of course, sometimes the answer is that the money was spent on medical bills or just to live because of a job layoff. But sometimes a potential client will call and have no answer. If you have been working steadily for the last few months without paying a mortgage but have nothing in your bank account, you should think about where the money went. This is a red flag to lawyers and trustees that there is something hidden going on. It might also mean that you simply do not earn enough to sustain your lifestyle or keep your home. If you are going to file a Chapter 13 to save your home, the last thing you want to be considered is a “red flag” debtor (i.e., someone with potential hidden or unexplained financial circumstances). You want to be the debtor with the smooth easy case that flies right through to confirmation of a plan. Lay all your cards on the table and take a hard honest look at your finances when you are considering Chapter 13.