I'm Behind on My Mortgage. Can Chapter 13 Help Me Catch Up?
You can cure mortgage arrears through your Chapter 13 bankruptcy repayment plan.
If you are behind on your mortgage, you can catch up on your missed payments by filing for Chapter 13 bankruptcy. In fact, one of the primary reasons many people file for Chapter 13 is to cure their mortgage default and save their home. Read on to learn more about how Chapter 13 can help you if you are behind in mortgage payments.
The Automatic Stay Stops Foreclosure
Even if your foreclosure sale was tomorrow, filing for Chapter 13 today would stop your lender from going forward with the sale. This is because the moment you file for Chapter 13 bankruptcy, an automatic stay is created. The stay prohibits your mortgage lender from selling your house or continuing any other collection efforts. (Learn more about the automatic stay in bankruptcy.)
The stay remains in effect as long as you make timely plan payments to the Chapter 13 trustee and continue to pay your ongoing mortgage payments as they come due after your filing date. Essentially, your lender can’t foreclose on your house because of pre-bankruptcy mortgage arrears (missed payments) if you are curing them through your repayment plan. However, keep in mind that if you fall behind in mortgage payments during your Chapter 13, the court may allow your lender to resume foreclosure proceedings by lifting the stay.
Chapter 13 Allows You to Cure Your Default Through a Repayment Plan
Chapter 13 is a referred to as a reorganization bankruptcy because it allows you to reorganize your debts and pay them off through a repayment plan. This includes any missed mortgage payments. In fact, you are required to cure your mortgage arrears through your plan if you intend to keep the house. (Learn more about the repayment plan in Chapter 13 bankruptcy.)
Depending on your income, your Chapter 13 plan can last anywhere between three to five years. However, it usually can’t exceed five years. This means that you can cure your mortgage arrears by paying only a small portion of the default each month. If you continue to pay your mortgage during your Chapter 13, you will be current on your payments when you complete your plan. As a result, filing for Chapter 13 bankruptcy provides an easy and efficient way to stop foreclosure and catch up on missed mortgage payments.
Example. Jack could not afford to pay his mortgage because of a temporary job loss. He is currently $18,000 behind in mortgage payments. Now, he has found another job and can resume making mortgage payments. However, his mortgage lender is not providing him an affordable way to cure his default and is preparing to foreclose on the house. If Jack files for Chapter 13 bankruptcy, his lender can no longer proceed with the foreclosure and he can cure his default by paying $300 (assuming zero interest) to the lender in his Chapter 13 plan over the next 60 months. However, keep in mind that Jack’s total plan payment may be more than $300 because of administrative fees, interest, or other debts he has to pay back.
Learn more about what happens to your home, mortgage, second mortgages, and more in Your Home and Mortgage in Chapter 13 Bankruptcy.