Mortgage Escrow Shortages During Chapter 13: Why Your House Payment Can Change Mid-Plan
Homeowners filing Chapter 13 often assume the mortgage payment listed in their plan stays fixed until the case ends. It usually does not.
Property taxes, insurance premiums, and escrow shortages can raise the amount needed to keep a mortgage current, even while the bankruptcy is still pending. Understanding why that happens, and what a servicer must do to notify you, can help a debtor avoid falling behind without realizing it.
Chapter 13 Cures Arrears, But Payments Can Still Move
11 U.S.C. § 1322(b)(5) allows a Chapter 13 plan to cure a mortgage default over time while the debtor keeps making the ongoing payment. That provision addresses the old default. It does not lock in the payment amount going forward. Mississippi’s Chapter 13 plan form reflects this by asking whether the mortgage payment includes escrow and whether it will be paid through the plan or directly to the servicer.
Why the Escrow Portion Can Rise
Servicers use escrow accounts to pay taxes and insurance on the borrower’s behalf. Under Regulation X, the servicer performs an annual escrow analysis and can collect one-twelfth of the year’s anticipated expenses each month, plus a modest cushion. If a shortage exists, the servicer may spread repayment over at least 12 months or, for smaller shortages, collect it within 30 days. That can create a two-part increase: a higher ongoing escrow amount plus a temporary shortage repayment, even though principal and interest stay the same.
When a qualifying payment changes, Bankruptcy Rule 3002.1 generally requires the mortgage holder to file and serve a Notice of Mortgage Payment Change at least 21 days before the new amount is due. If the numbers are disputed, a debtor or trustee can ask the court to determine the mortgage claim’s status under the rule’s newer procedure.
Check Any Payment Change Notice Right Away
A payment increase does not necessarily mean the plan failed or the servicer made a mistake. But continuing to pay the old amount after a valid notice can create new arrears outside the original plan. At O’Brien Law Firm, we can review a Notice of Mortgage Payment Change against the servicer’s escrow analysis and help determine whether the Chapter 13 budget or plan needs adjusting. Give us a call at 662-672-7619, or connect with us through our contact form.
