Curing Defaults in Chapter 13 Bankruptcy:

Foreclosure Judgment or Loan Documents?

In Chapter 13 proceedings, the Bankruptcy Code empowers a Debtor to cure a prepetition default, while maintaining the current contract payment with the creditor.  As a tradeoff, all terms of the original loan documents are reinstated.

While a relatively straightforward concept; Foreclosure Judgments greatly confuse the issue because, in the state of Florida, the underlying loan documents merge into the Final Judgment.  As a result; Debtors have made the argument that any fees, costs, or other charges not included in the Foreclosure Judgment should be waived as the underlying loan documents no longer exist.  Consequently; such fees, costs, and charges have been objected to (as waived by failure to include in the Foreclosure Judgment) if identified in the creditor’s proof of claim.

The attached Order from the Southern District of Florida (issue argued by ALAW) instructs that if a Debtor elects to cure an arrearage and maintain the regular mortgage payment on a secured creditor’s claim pursuant to §1322(b)(5), the amount necessary to cure and maintain can be found in the underlying mortgage, not the Final Judgment.  As a result, such fees can be included in the Proof of Claim as part of the secured arrearage to be cured.

The attorneys of ALAW remain well attuned to our ever-changing legal landscape and are prepared to provide you with unparalleled representation every step of the way.

For more information on this legal update please contact:

Jeffrey Fraser, Esq.

Managing Attorney – Bankruptcy

jfraser@alaw.net

813.221.4743 Ext. 2499