If you are behind on your house payments and are considering filing Chapter 13 bankruptcy to save your home, it is important that you find out whether you have forced-placed insurance.
Your bankruptcy attorney may ask you whether your homeowner’s insurance payments are usually included in your mortgage payments (in other words, whether your insurance is escrowed). If your answer to that question is yes, but you are several months behind on your mortgage payments, there are further steps you need to take.
When you fall behind on mortgage payments, the mortgage company is no longer receiving money from you each month to make your homeowner’s insurance payment on your behalf. Therefore, the homeowner’s insurance may lapse due to non-payment. The mortgage company cannot have the liability of a house with no insurance coverage, so the mortgage company will pay for insurance on your behalf. This is called forced-placed insurance because the mortgage company is essentially forcing it onto your home since there is no other insurance coverage on your home.
Why should you be concerned about forced-placed insurance? The reason is that this insurance is generally much more expensive than the insurance you could find and pay for on your own. When your Chapter 13 bankruptcy is filed, the mortgage company will add the forced-placed insurance costs onto the amount you are behind on payments. In the end, this could cause your Chapter 13 plan payment to be higher than necessary.
If you contact your mortgage company and find out there is forced-placed insurance on your property, speak with your Chapter 13 bankruptcy attorney about your options. He or she may recommend that you obtain your own property insurance that you will pay for out of pocket. Your attorney will also remind you to notify the mortgage company with proof of the new coverage when it has been obtained, so the forced-placed insurance can be cancelled.