If you are behind on your mortgage payments, Chapter 13 bankruptcy can allow you to cure the default and save your home. But if you file for Chapter 13 bankruptcy and want to keep your home, you must continue making your ongoing mortgage payments as they come due after filing your case. Read on to learn more about what happens if you don’t pay your mortgage during Chapter 13 bankruptcy.
For more information on how bankruptcy affects your mortgage, see our topic area on Your Home in Chapter 13 Bankruptcy.
Chapter 13 bankruptcy allows debtors to reorganize and pay back a portion of their debts through a three- to five-year repayment plan. If you are behind on your mortgage payments but want to keep your home, you can catch up on your prebankruptcy arrearages through your repayment plan. Because a Chapter 13 repayment plan can last up to five years, it provides many debtors with an effective and affordable way to cure their mortgage default and save their home.
To learn more about how Chapter 13 bankruptcy plans work, see our topic area on The Chapter 13 Repayment Plan.
Chapter 13 bankruptcy is designed to let you catch up on any mortgage payments you missed prior to filing your case. But you must continue to make your ongoing mortgage payments as they come due after filing for bankruptcy. If you don’t make your regular mortgage payments during bankruptcy, your lender will have grounds to ask the court for permission to foreclose on your home.
While you are catching up on your missed mortgage payments, the Chapter 13 bankruptcy’s automatic stay prohibits your lender from foreclosing on your home. The automatic stay protects you as long as you continue to make both your monthly repayment plan and ongoing mortgage payments. If you fail to make your mortgage payments, your lender can ask the court to lift the automatic stay so that it can foreclose on your home.
If your lender wants to start the foreclosure process, it will have to file a motion for relief from the automatic stay to obtain court permission. You have the right to oppose the motion and explain to the court why the stay should remain in effect. But in general, unless you can prove that the lender made a mistake or that you can get caught up on the postbankruptcy payments you missed within a short period of time, the court will typically grant the motion.
For more information, see When Can a Creditor Get Relief From the Automatic Stay?
If you can satisfy certain conditions, Chapter 13 bankruptcy allows you to eliminate your second mortgage (or other junior liens) from your house through a process called lien stripping. In order to strip your second mortgage, you must show the court that your first mortgage balance exceeds the value of your home.
If you strip your second mortgage in Chapter 13 bankruptcy, it is treated as a general unsecured debt (like credit card debt or medical bills) in your repayment plan. This means that you don’t have to pay your second mortgage during bankruptcy. But if you don’t qualify to strip your second mortgage, you must continue to make your regular payments as they come due.
To learn more about how to eliminate junior liens from your home, see How to Strip a Second Mortgage or HELOC in Chapter 13 Bankruptcy.
When you complete your repayment plan and obtain a discharge, your prebankruptcy mortgage arrearages will be paid off. If you continued to make your ongoing payments during bankruptcy, you will be current on your mortgage at the end of your Chapter 13 bankruptcy.
But keep in mind that when you obtained your mortgage loan, you gave your lender a security interest (lien) in your home. Unless you eliminated the mortgage through lien stripping, your bankruptcy discharge doesn’t wipe out the lender’s lien on your property. This means that you have to also continue making your mortgage payments after you complete your Chapter 13 bankruptcy and receive a discharge.