Mortgage arrears and Chapter 13 bankruptcy

Chapter 13 bankruptcy may allow you to avoid surrendering your home. For example, assuming you are up to date on your mortgage payments and you continue to pay your mortgage, you can generally keep your home if you file Chapter 13 bankruptcy. What if you are behind on your mortgage payments and owe mortgage arrears? Chapter 13 bankruptcy may also allow you to repay your mortgage arrears within your Chapter 13 bankruptcy repayment plan.

Mortgage arrears and Chapter 13 bankruptcy


Many debtors choose to file Chapter 13 bankruptcy instead of Chapter 7 bankruptcy so they can save their house. If you choose to file Chapter 13 bankruptcy the moment you file your bankruptcy petition the court issues an automatic stay which bars the mortgage lender from continuing their collection actions and from selling your home.

Your home may be protected as long as you continue to make mortgage payments. If you fail to make payments, however, the lender may have the right to request the automatic stay be lifted and continue with their foreclosure efforts.

What about your mortgage arrears? Under Chapter 13 bankruptcy you will create a 3 or 5 year repayment plan. If you have payments you have not made for your home these will be included in the repayment plan and paid out over the span of the repayment plan (keep in mind you will have to continue to pay the monthly mortgage payments).

For example, Judy has had serious health issues and lost her job. She owes $20,000 in missed mortgage payments. After several months of missed payments the mortgage company has started foreclosure proceedings against Judy and is threatening to take the house. Judy decides to file Chapter 13 bankruptcy. Filing Chapter 13 stops the creditor from proceeding with the foreclosure and allows Judy to repay her mortgage arrears within her bankruptcy plan by paying several hundred dollars a month for 60 months.

Can I stop paying my mortgage while I am in bankruptcy?

Debtors often wonder if filing Chapter 13 will allow them to discontinue paying their mortgage for the duration of the bankruptcy filing. Unfortunately, although Chapter 13 may allow you to pay the mortgage arrears over a designated period of time, it will not allow you to avoid making timely mortgage payments. In fact, if you stop making mortgage payments the bank will likely proceed with their foreclosure.

Consider, however, because there is an automatic stay in place you may be protected for a time until the lender can get permission from the court to proceed with the foreclosure. Unfortunately, if the creditor’s motion is granted, you will have a limited time to challenge the motion. If you do not oppose the motion your lender may foreclose on your home.

What if you challenge the motion for relief? You will have to attend a hearing. At the hearing the judge has several options. They can grant the motion of relief and allow the lender to proceed with debt collection or they can give you more time to pay the missed mortgage payments, this is called an adequate protection order.

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Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.