Chapter 13 bankruptcy works with your mortgage by freezing foreclosure the moment you file and giving you three to five years to pay back every missed payment in installments, while you resume making the regular monthly mortgage payment going forward. Your loan terms do not change. The interest rate, principal balance, and monthly payment on your primary home stay exactly as they were. What the plan buys you is time and a court-enforced structure to catch up without the lender being able to take the house.
Foreclosure Stops the Day You File
The instant your petition is filed, an automatic stay goes into effect that halts every collection action against you, including a scheduled sheriff’s sale.1Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Your lender cannot move forward with foreclosure, send the account to collections, or even call you about the debt. The stay stays in place for the whole case as long as you follow the plan.
Two situations weaken the stay. If a prior bankruptcy case was dismissed in the last year, the stay in your new case expires after 30 days unless you ask the court to extend it and show you filed in good faith. If two or more prior cases were dismissed in the past year, no automatic stay arises at all, and you have to petition the court to impose one.1Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay Filing on the courthouse steps works, but repeat filers trying to stall a sale get a harder look.
Catching Up Through Cure and Maintain
The core tool for homeowners is called cure and maintain. Your plan commits you to repaying every dollar of missed mortgage payments, including accrued interest, late fees, and the lender’s legal costs, in installments spread over the life of the plan. At the same time, you resume paying the regular monthly mortgage payment as it comes due.2Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan When the plan is finished, you are current.
Missing a post-filing mortgage payment is where most Chapter 13 cases unravel. A single missed payment lets the lender ask the court to lift the automatic stay and restart foreclosure. The entire premise of the plan was that you would stay current on the ongoing mortgage, so courts have little patience for new defaults. Falling behind again is the fastest route to losing both the bankruptcy protection and the home.
What Chapter 13 Cannot Do to Your First Mortgage
A persistent misconception is that Chapter 13 lets you lower the interest rate or write down the principal on your home loan. It does not. Federal bankruptcy law specifically prohibits modifying the terms of a mortgage secured only by your principal residence.2Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan The monthly payment, rate, and balance remain untouched. The plan lets you catch up on what you missed. It does not rewrite the loan.
The restriction applies only to the first mortgage on your primary home. Loans on investment properties, vacation homes, or commercial real estate can be modified through the plan. And wholly underwater junior liens can be removed from the property entirely, which is a different remedy than modification.
When a Second Mortgage Can Be Stripped
Lien stripping is one of the strongest tools Chapter 13 gives homeowners whose property values have fallen. If the balance on your first mortgage alone exceeds the home’s current market value, any second mortgage or home equity line is treated as wholly unsecured. The court can reclassify that junior lien as unsecured debt, which removes it from the property.3Office of the Law Revision Counsel. 11 USC 506 – Determination of Secured Status
The lien has to be wholly unsecured for this to work. If your home is worth $250,000 and the first mortgage balance is $260,000, a $40,000 second mortgage has no collateral behind it and moves into the general unsecured pool with credit card balances and medical bills, where creditors typically recover only pennies on the dollar. After you complete the plan, the remaining balance on the stripped loan is discharged and the lien comes off the title permanently.
A dollar of equity supporting the junior lien defeats the claim, so the valuation matters. A professional appraisal or comparative market analysis is almost always needed. Lien stripping is available only in Chapter 13; the Supreme Court closed off the Chapter 7 version in 2015.
How Mortgage Payments Flow During the Case
How you actually pay the mortgage after filing depends on your local bankruptcy court. Some courts require conduit payments, where you send the full mortgage payment to the Chapter 13 trustee, who forwards it to the servicer along with the arrears installment. Other courts let you pay the servicer directly and send only the arrears portion to the trustee. Your first payment to the trustee is due within 30 days of filing.4United States Courts. Chapter 13 – Bankruptcy Basics
Conduit payments create a documented trail through the trustee that heads off disputes about whether a payment arrived. Direct pay keeps the mortgage relationship more normal but leaves you to prove payment if a question comes up later. Either way, keep every confirmation and receipt. Administrative mix-ups between servicers and trustees are more common than they should be, and your own records are the only reliable defense against a “we never got it” claim.
The trustee collects a fee for running the case, set by the Attorney General at up to 10% of all payments made through the plan.5Office of the Law Revision Counsel. 28 USC 586 – Duties; Supervision by Attorney General The fee is built into your plan payment rather than added on top, but it does mean a portion of every dollar you send goes to administration instead of to your creditors.
Payment Changes and Servicer Fees Mid-Plan
Your mortgage does not sit frozen for the whole plan. Property taxes shift, insurance premiums change, and escrow accounts get recalculated. Federal rules require your servicer to notify you, your attorney, and the trustee at least 21 days before any payment change takes effect.6Legal Information Institute. Rule 3002.1 Chapter 13 Claim Secured by a Security Interest in the Debtor’s Principal Residence If the notice is late, the new amount does not kick in until 21 days after you actually receive it.
The servicer also has to disclose any post-petition fees, expenses, or charges it imposes against you or the property, such as inspection fees, property preservation costs, and late charges. The deadline is 180 days from when the charge was incurred.6Legal Information Institute. Rule 3002.1 Chapter 13 Claim Secured by a Security Interest in the Debtor’s Principal Residence You or your attorney can challenge any of these by asking the court to rule on whether the fee is actually allowed under the mortgage and applicable law. These disclosure rules were written to stop servicers from burying charges during the case and springing them at the end.
Who Qualifies and How Long the Plan Runs
Chapter 13 is only open to individuals with regular income whose debts fall within set caps. For cases filed between April 1, 2025, and March 31, 2028, total secured debt (your mortgage balance included) must be under $1,580,125, and total unsecured debt must be under $526,700.7Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor If your mortgage alone exceeds the secured cap, Chapter 13 is off the table and individual Chapter 11 is the alternative.
You also need enough monthly income after basic living expenses to cover both the regular mortgage payment and the plan payment that funds the arrears and other debts. If the budget cannot carry both, the court will reject the plan as infeasible. A credit counseling briefing with an approved nonprofit agency within 180 days before filing is required of every individual filer, with narrow exceptions.8Office of the Law Revision Counsel. 11 USC 109 – Who May Be a Debtor
Household income compared to the state median for your household size sets the plan length. Below median, the plan defaults to three years. At or above median, it runs five.2Office of the Law Revision Counsel. 11 USC 1322 – Contents of Plan No plan runs longer than five years. For homeowners curing a large arrearage, the five-year plan is often more realistic even if your income qualifies you for three. Spreading $20,000 in missed payments across 60 months costs roughly $333 a month in arrears; across 36 months it is about $556. Many below-median filers voluntarily propose longer plans to keep the monthly obligation workable.4United States Courts. Chapter 13 – Bankruptcy Basics
Home Equity and the Liquidation Test
Your plan has to satisfy what is called the best interest of creditors test. Unsecured creditors must receive at least as much through the plan as they would have gotten if you had filed Chapter 7 and your assets were sold.9Office of the Law Revision Counsel. 11 USC 1325 – Confirmation of Plan For homeowners, this is about equity. Every state protects a certain dollar amount of home equity through a homestead exemption. Equity above that figure is non-exempt, and the plan has to pay unsecured creditors at least that unprotected amount.
Say the home is worth $350,000, the mortgage balance is $280,000, and the state homestead exemption covers $50,000. Equity is $70,000, and $20,000 of it is unprotected. The plan would need to distribute at least $20,000 to unsecured creditors across its duration. That can push the monthly plan payment well above where you expected it to land, and some homeowners decide the arithmetic no longer favors keeping the house through Chapter 13.
What Happens When the Plan Ends
Finishing all plan payments does not automatically mean the mortgage is declared current. Within 45 days after you make the last payment, the trustee files a notice detailing how much was paid to the mortgage holder for both the arrears cure and ongoing payments, and whether the account is now current.6Legal Information Institute. Rule 3002.1 Chapter 13 Claim Secured by a Security Interest in the Debtor’s Principal Residence The lender then has 28 days to respond, either agreeing the account is current or itemizing what it says is still owed. If the lender disputes the figures, the court holds a hearing to resolve them.
Your discharge does not wipe out the mortgage itself. Long-term debts where the final payment falls after the plan ends are specifically excluded from Chapter 13 discharge.10Office of the Law Revision Counsel. 11 USC 1328 – Discharge You keep paying the regular mortgage after the case closes. What the plan accomplished was bringing you current so the lender no longer has grounds to foreclose, and that is usually the point of filing in the first place.