Mortgage Fees Added to Bankruptcy

home iconOne of the best reasons people file Chapter 13 bankruptcy is to save their home. A bankruptcy stops a foreclosure sale, even if it is only an hour away from happening. You then have 5 years to pay back the amount you were behind, during which time you must also make the monthly mortgage payment as it comes due. So if you missed three mortgage payments of $1,000 each, you are $3,000 in arrears on your mortgage. In Chapter 13, you can prevent the foreclosure and even though you cannot come up with the $3,000 to catch the mortgage up immediately, you can do so over the next 3 to 5 years. But very often, when a person files a Chapter 13 bankruptcy, the bank will file a claim not only for the $3,000 owed, but for attorneys’ fees as well. On the one hand, nobody requires a bank to hire an attorney just because you file bankruptcy, so it isn’t fair that you be made to pay them. On the other hand, your loan contract probably says that they have the right to do just that. Is this allowed?

Only in certain circumstances. For mortgage attorneys’ fees to be allowed against you in bankruptcy, the bank must prove three things. First, that the contract gives them the right to collect attorneys’ fees from you – it probably does. Second, that the amount of the fee is reasonable. And third, that you have equity in the property. Due to the current condition of the housing market, it is usually unlikely that all three criteria are met. If your mortgage balance is $150,000 and your home is only worth $149,000, then the bank cannot charge you their attorneys’ fees.

And even if you do have equity in the home, the bank must show that the fees are reasonable. Most bankruptcy courts have a certain amount that they routinely accept as reasonable. ¬†There typically is not much attorney work required to simply file a claim in a Chapter 13 case, so any fees over $300 should raise an eyebrow. If your bank is claiming over $500 in attorneys fees simply because you filed a bankruptcy, you need to talk to your bankruptcy lawyer and ask him to check it out. He may be able to argue to the court that it should be reduced to a more reasonable amount. Every penny counts when you’re in Chapter thirteen!