For homeowners facing foreclosure, Chapter 13 bankruptcy offers powerful tools to stop the process and save their homes. Unlike Chapter 7, which provides only temporary delay, Chapter 13 allows you to cure mortgage defaults over time while maintaining current payments, giving you a realistic path to keeping your home despite falling behind.
How Chapter 13 Stops Foreclosure
Filing Chapter 13 triggers the automatic stay, immediately halting foreclosure proceedings regardless of how far along they've progressed. Even if a foreclosure sale is scheduled for tomorrow, filing today stops it. This powerful protection gives homeowners breathing room to propose a plan addressing their mortgage arrears while maintaining their regular payments going forward.
The automatic stay remains in effect throughout your bankruptcy case, preventing the mortgage lender from continuing foreclosure as long as you comply with your plan obligations. This extended protection distinguishes Chapter 13 from Chapter 7, where the stay eventually lifts and foreclosure resumes if arrears aren't addressed.
Curing Mortgage Arrears Through Your Plan
Chapter 13's most valuable feature for homeowners is the ability to cure mortgage defaults over the three to five year plan period. However much you've fallen behind, those arrears become part of your repayment plan, spread over 36 to 60 monthly payments. Combined with maintaining your regular mortgage payment, this allows you to catch up gradually while staying in your home.
For example, if you're $18,000 behind on your mortgage and have a five-year plan, you'll add roughly $300 monthly to catch up the arrears in addition to your regular mortgage payment. By plan completion, you'll be current on your mortgage with the default cured entirely.
Requirements for Saving Your Home
Chapter 13 can save your home, but it requires commitment and capability. You must have sufficient income to make both your regular mortgage payment and your Chapter 13 plan payment throughout the repayment period. Missing payments can result in case dismissal and resumed foreclosure, so realistic budgeting is essential.
Your plan must be feasible from the court's perspective. The bankruptcy judge won't approve a plan that appears destined to fail. Demonstrating stable income, reasonable expenses, and genuine ability to maintain required payments throughout the plan period is necessary for confirmation.
What If Mortgage Modification Makes More Sense
Sometimes mortgage modification outside bankruptcy provides better solutions than Chapter 13. Modifications can reduce interest rates, extend loan terms, or even reduce principal balances in some cases. Chapter 13 doesn't modify mortgage terms for primary residences under standard rules, so if modification would address your problems better than simply catching up arrears, exploring that option first may make sense.
Bankruptcy can facilitate modifications by stopping foreclosure while you negotiate with your lender. Some homeowners file Chapter 13 primarily to halt foreclosure while pursuing modification, then dismiss the case if modification succeeds or continue the case if it doesn't.
Strip Off Junior Liens
In some circumstances, Chapter 13 allows stripping off wholly unsecured junior mortgages. If your home's value is less than what you owe on your first mortgage, second mortgages or home equity lines become unsecured debt that may be paid at reduced rates like other unsecured debts. Upon plan completion, the junior lien is eliminated entirely.
Lien stripping can dramatically improve your financial situation by eliminating underwater second mortgages. However, this option depends on your home's value relative to your first mortgage balance, and valuations may be contested by lenders seeking to preserve their liens.