What Home Mortgage Lenders Should Know About Recent Changes to the Rule on Mortgage Servicing in Bankruptcy

Federal Rule of Bankruptcy Procedure 3002.1 (the “Rule”) was amended effective December 1, 2025.  The Rule applies when a borrower files Chapter 13 bankruptcy, is keeping his primary residence, and files a Chapter 13 plan that provides for ongoing payments on the mortgage.  The Rule is important for mortgage lenders, as it imposes servicing practices that are required during the Chapter 13 case to ensure transparency about payment changes and proper payment application.  This article discusses what mortgage lenders should know about the recent amendments (the “Amendments”).

First, the Amendments expand the Rule’s scope.  Before the Amendments, the Rule applied only if the borrower’s Chapter 13 plan provided for “contractual installment payments” on the loan.  Now, the Rule applies whenever the Chapter 13 plan provides for “payment on the debt”. Therefore, the Rule now applies to any loan on the debtor’s primary residence that the Chapter 13 plan provides for.  This includes, for example, loans that are modified in the plan. 

Second, the Amendments eliminated the bankruptcy court’s prior ability to modify a lender’s obligation to give notice of payment changes under a home-equity line of credit (“HELOC”).  Now, every lender, including HELOC lenders, must file notices of payment change – including a change resulting from an interest-rate or escrow-account adjustment – with the court and serve it on the borrower, the borrower’s counsel, and the Chapter 13 trustee.  Therefore, lenders should be aware that if a home mortgage borrower files Chapter 13, it is very likely that the Rule applies, even if the loan is a HELOC.

Third, the Amendments create a new protocol for payment changes to a HELOC.  Under that protocol –

1. The HELOC lender can either (a) file a notice of payment change 21 days before the new payment is due (which is the standard rule for any loan under the Rule), or (b) file a notice annually, with the first annual notice due within one year after the bankruptcy case is filed;
2. If the HELOC lender chooses to file an annual notice, the notice must (a) state the payment amount due for the month when the notice is filed, and (b) include a reconciliation amount based on any overpayment or underpayment during the previous year. The reconciliation amount is payable with the first payment due at least 21 days after the annual notice is filed.
3. Even if the HELOC lender chooses to give an annual notice, if the borrower’s payment increases or decreases by more than $10 in any month, then the lender must also give a notice of such change within 21 days before the new payment is due. 

Therefore, in addition to calendaring the need to file a notice of payment change annually, HELOC lenders should monitor whether payments fluctuate by more than $10 per month and, when they do, file a notice of payment change at least 21 days in advance of the change.  A notice of payment change should still be filed and served as a supplement to the lender’s proof of claim using Form 410S-1 (a copy of which is here).

Fourth, the Amendments penalize lenders who fail to give timely notice of a payment change by providing that a payment increase does not take effect until the first payment due date that is at least 21 days after the notice is given.  In other words, the lender, not the borrower, has to absorb a payment increase until the borrower receives a proper notice of the increase.

Fifth, the Amendments create a new procedure for the borrower or Chapter 13 trustee to request a determination of the status of the loan at any time during the Chapter 13 case.  They can now do so by filing a motion to determine status, and the lender will then have 28 days to file and serve a response, which must be prepared using Form 410C13-M1R (a copy of which is here) and may need to include an itemized payment history from the date of the bankruptcy filing through the date of the response.  A court hearing to resolve any disagreement will follow.

Sixth, the Amendments update the existing end-of-bankruptcy-case procedure for loan reconciliation.  Under the Amendments, within 45 days after the borrower completes all his payments to the Chapter 13 trustee, the trustee will send a notice to the lender detailing the trustee’s payments to the lender and stating whether (a) any arrearage has been cured, and (b) whether the payments that came due during the bankruptcy case are current.  The lender will have 28 days to file and serve its response, which must be a supplement to the lender’s proof of claim and prepared using Form 410C13-NR (a copy of which is here). 

The debtor or trustee then have up to 45 days to file a motion to determine whether all arrearages have been cured and whether all payments that came due during the bankruptcy case are current.  If they file such a motion, then the lender has 28 days to file and serve a response, which must be prepared using Form 410C13-M2R (a copy of which is here) and may need to include an itemized payment history from the date of the bankruptcy filing through the date of the response.  Again, a court hearing to resolve any disagreement will follow.

Finally, the Amendments do not alter the lender’s duty to file a notice itemizing any fees, expenses, or charges incurred after the bankruptcy filing that are recoverable against the borrower or his home. Such a notice must still be filed within 180 days after the fee, expense, or charge is incurred, and it must still be filed and served as a supplement to the lender’s proof of claim using Form 410S-2 (a copy of which is here).

The Amendments are the first substantive amendments to the Rule since 2018 and are a substantial change.  Lenders are well advised to review the Rule and the related forms and consult with counsel in order to maximize loan recovery and reduce litigation risk. 

Spotts Fain publications are provided as an educational service and are not meant to be and should not be construed as legal advice.  Readers with particular needs on specific issues should retain the services of competent counsel.