Will My Mortgage Servicer Continue to Automatically Take My Mortgage Payment From My Account After I File Bankruptcy?

Many homeowners have a system with their lender where the lender automatically pulls the mortgage payment from the homeowner’s bank account. However, when a bankruptcy is filed, the automatic stay of 11 U.S.C. Sec. 362 goes into effect, and at least arguably, lenders could be in violation of this stay by taking money out of the debtor’s account. Consequently, if your lender “pulls” money out of the debtor’s account, the debtor should plan on another arrangement after filing to pay the mortgage.

However, if the debtor “pushes” a mortgage payment to the lender, where the debtor initiates the payment, this would not be a violation of the automatic stay and will likely not be stopped by the bankruptcy filing.

In addition, as a matter of prudence, it is almost always better for the debtor to be in control of making payments like this, to a mortgage company or any other creditor. Creditors often want a debtor to give the creditor access to the bank account to “pull” funds out so that the creditor is in control of the transaction. However, if the debtor decides they don’t want to make the payment, they may find it very difficult to cancel the transaction and to stop the payment both with the creditor and the bank.