How Chapter 13 Bankruptcy Can Help Stop Home Foreclosure
Facing foreclosure can be one of the most stressful experiences a homeowner goes through. Fortunately, there are legal tools available that can help stop foreclosure in its tracks—one of the most powerful being Chapter 13 bankruptcy. This form of bankruptcy can give homeowners a second chance to save their homes by reorganizing debts and setting up a realistic repayment plan.
In this blog post, we’ll break down how Chapter 13 bankruptcy works in the context of home foreclosure, who it’s right for, and how it can provide a structured path toward financial stability.
What Is Chapter 13 Bankruptcy?
Chapter 13 bankruptcy, also known as a wage earner’s plan, is designed for individuals with regular income who want to pay off all or part of their debts over time. Unlike Chapter 7 bankruptcy, which involves liquidating assets to pay creditors, Chapter 13 allows you to keep your property, including your home, while catching up on overdue mortgage payments through a court-approved repayment plan.
The repayment plan typically lasts three to five years depending on your income level and the amount of debt you owe.
How Chapter 13 Bankruptcy Stops Foreclosure
One of the most immediate benefits of filing Chapter 13 is the automatic stay. Once you file, the bankruptcy court issues an order that automatically stops most collection actions, including:
- Foreclosure proceedings
- Lawsuits
- Wage garnishments
- Harassment from creditors
This automatic stay provides breathing room, giving you time to create a repayment strategy without losing your home.
Example:
Let’s say Jane is three months behind on her mortgage and has received a foreclosure notice. She files for Chapter 13 bankruptcy the day before her home is scheduled for auction. Thanks to the automatic stay, the foreclosure is immediately halted, and Jane now has the chance to propose a repayment plan to catch up on her missed mortgage payments over the next 60 months.
Repaying Mortgage Arrears Through a Chapter 13 Plan
One of the key features of Chapter 13 bankruptcy is the ability to repay mortgage arrears over time. Instead of having to come up with a large lump sum to prevent foreclosure, you can break the amount owed into manageable monthly payments as part of your bankruptcy plan.
Example:
Suppose John is $18,000 behind on his mortgage. If approved for Chapter 13, he could spread that $18,000 across a five-year repayment plan, resulting in $300 per month (plus any trustee fees), while continuing to make his normal monthly mortgage payments. If he stays current, the lender cannot foreclose on his home.
Can Chapter 13 Eliminate Second Mortgages?
In some situations, Chapter 13 bankruptcy can also be used to strip a second mortgage. This is possible if your home is worth less than the amount owed on your first mortgage, making the second mortgage unsecured. The bankruptcy court may allow you to eliminate the second mortgage entirely, treating it like a credit card or medical bill.
Example:
Mary owes $300,000 on her first mortgage and $50,000 on a second mortgage, but her home is only worth $280,000. In this case, the second mortgage is completely unsecured. Through Chapter 13, Mary can request to strip the second mortgage, effectively reducing her total debt load and making her financial situation more manageable.
Eligibility for Chapter 13 Bankruptcy
To file for Chapter 13, you must meet the following criteria:
- Regular Income: You must have a steady source of income to support a repayment plan.
- Debt Limits: As of 2025, your unsecured debts must be under $465,275 and secured debts must be under $1,395,875 (these limits adjust periodically).
- Filing History: You cannot have filed Chapter 13 within the last 2 years or Chapter 7 within the last 4 years if you want to be eligible for another discharge.
Pros and Cons of Using Chapter 13 to Stop Foreclosure
✅ Pros:
- Stops foreclosure immediately
- Allows you to keep your home
- Repays arrears over time
- Protects co-signers from collection
- May eliminate second mortgages in certain cases
❌ Cons:
- Long commitment (3 to 5 years)
- Requires strict budgeting and timely payments
- Missed plan payments can lead to dismissal
- Legal and court fees involved
What Happens If You Miss Payments During Chapter 13?
Your Chapter 13 plan requires on-time payments to both your mortgage lender and the bankruptcy trustee. If you fail to make payments:
- The court may dismiss your case, lifting the automatic stay and allowing foreclosure to resume.
- Creditors may file motions to lift the stay and continue with foreclosure.
- You may be forced to refile the case or switch to Chapter 7 (if eligible), which could lead to the loss of your home.
Consistency and budgeting are key. Many filers work with a bankruptcy attorney or financial advisor to make sure they stay on track.
Is Chapter 13 Bankruptcy Right for You?
Chapter 13 bankruptcy is a powerful tool, but it’s not a one-size-fits-all solution. It may be the right choice if:
- You’ve fallen behind on your mortgage but have steady income
- You want to keep your home and stop foreclosure
- You need time to repay past-due debts
- You have other unsecured debts (like credit cards or medical bills) you want to reorganize
However, if your income is unpredictable or you don’t have the ability to stick to a structured repayment plan, you may want to explore alternatives like loan modification, forbearance, or even Chapter 7 bankruptcy.
Final Thoughts
Chapter 13 bankruptcy is one of the most effective legal strategies to stop home foreclosure and provide a path to financial recovery. It gives homeowners time, structure, and legal protection while catching up on mortgage arrears and keeping their property.
If you’re facing foreclosure, don’t wait until it’s too late. Speak with a qualified bankruptcy attorney to find out if Chapter 13 is the right move for you.