- Best for
- When you have steady income, can afford the regular payment, and need years to catch up.
- You keep the home
- Yes, if you make every plan payment and every mortgage payment on time.
- Watch for
- Timing. The default can be cured only until the home is sold at the foreclosure sale.
What filing does
The moment a bankruptcy petition is filed, an automatic stay stops collection, including a foreclosure. In Chapter 13 you then propose a plan to cure the missed mortgage payments over time.
The plan lasts three years if your income is below your state's median, or five years if it is above. No plan can run longer than five years. During the plan you must also make every regular mortgage payment that comes due, on time.
What it cannot do
- It cannot change the terms of a loan secured only by your main home. It can cure the default, not rewrite the mortgage.
- It cannot undo a completed sale. A home mortgage default can be cured in Chapter 13 only until the home is sold at a foreclosure sale held under state law.
- The stay is not permanent. The lender can ask the court to lift it, and usually will if you fall behind again.
Repeat filings get less protection
- If you had one bankruptcy case dismissed within the past year, the stay in a new case ends after 30 days unless the court extends it.
- If you had two or more cases dismissed within the past year, no stay goes into effect unless the court orders one.
- You generally cannot refile for 180 days if an earlier case was dismissed for willfully failing to follow court orders, or you dismissed it yourself after the lender asked to lift the stay.
What about Chapter 7?
Chapter 7 also triggers the stay, but it may last only a short time. A Chapter 7 discharge does not remove the mortgage lien, so the lender can still foreclose once the stay ends. The federal courts point to Chapter 13, not Chapter 7, as the way to catch up on past-due mortgage payments.
Cost and first steps
- The federal courts list a $235 filing fee plus a $75 administrative fee for Chapter 13, and limits of $526,700 in unsecured debt and $1,580,125 in secured debt.
- You must complete credit counseling from an approved agency within 180 days before filing.
- This is the one option on this site where you should have a lawyer. Bankruptcy has long-term consequences, and a mistake can cost you the stay. Legal aid offices and the bar referral service on your state's page can help you find one.
How much time do you have? It depends on your state.
See the foreclosure timeline, deadlines and free local help for the state where the home is.
Common questions
How close to the sale date can I file?
The stay takes effect when the petition is filed, so the filing has to be complete before the sale happens. A case filed in a rush can be dismissed for missing documents, which then weakens the stay in any later case. Talk to a bankruptcy lawyer as early as you can.
Is the tax on forgiven debt different in bankruptcy?
Yes. Debt cancelled in a bankruptcy case is excluded from taxable income. See taxes after foreclosure or forgiven debt.
Other options to compare
- Repayment planYou keep paying your normal mortgage payment and add an extra amount each month until the missed payments are paid back.
- ForbearanceYour servicer agrees to accept reduced payments, or none, for a limited time. The missed amount is still owed and has to be dealt with when the pause ends.
- Payment deferral or partial claimThe missed payments are set aside as a balance with no interest and no monthly payment. It comes due when you sell, refinance or pay off the mortgage.
- Loan modificationYour servicer permanently changes the loan, usually by adding the missed payments to the balance and stretching the term or lowering the rate, so the payment is affordable.
- ReinstatementYou pay all the missed payments, late fees and foreclosure costs in one payment. The loan goes back to normal and the foreclosure ends.
- Short saleYou sell the home for less than the mortgage balance and the lender agrees to take the sale price. It avoids a foreclosure sale when keeping the home is not possible.