Curing Mortgage Arrears in Chapter 13.
Don’t lose your home. Our guide to Chapter 13 bankruptcy explains how to use the automatic stay to stop foreclosure and cure mortgage arrears with a repayment plan.
A Family Facing Foreclosure:
John and Melissa sat quietly in their living room as an envelope stamped “Notice of Default” lay on the coffee table. This notice, a formal communication from the lender, indicates that the homeowners are in danger of losing their home due to mortgage arrears. Three months of unpaid mortgage payments turned into six, and the lender’s letters grew increasingly threatening. Their children overheard whispered conversations about losing the house and grew restless. Each passing day felt like sand slipping through an hourglass, bringing them closer to eviction. A co-worker had mentioned Bankruptcy, yet confusion about Chapter 13’s treatment of mortgage arrearages stalled any action. The fear of losing their home weighed heavily than any other debt they carried.
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What Are Mortgage Arrearages in Bankruptcy?
Mortgage arrearages refer to missed payments that accumulate when homeowners fall behind on their mortgage payments. In bankruptcy, arrearages are classified as secured debts tied directly to property. Chapter 13 allows debtors to cure these arrears over the course of a repayment plan, which spans three to five years. Consequently, families facing foreclosure gain a structured opportunity to get back on track. California Code of Civil Procedure §704 homestead exemptions further protect equity, ensuring debtors do not automatically lose their homes. The arrears become part of the Chapter 13 plan, managed by a trustee who disburses funds to the mortgage lender. Accordingly, Chapter 13 offers an alternative to immediate foreclosure.
How Does Chapter 13 Address Mortgage Arrearages?
Chapter 13 offers a ray of hope for homeowners like John and Melissa. It enables them to resume regular monthly payments while spreading past-due amounts across the repayment plan. This dual approach is like repairing a bridge while traffic continues to flow—the plan keeps the home loan current while addressing arrears simultaneously. Moreover, the automatic stay under 11 U.S.C. §362 halts foreclosure proceedings upon filing, providing a much-needed breathing space. However, it’s crucial to adhere strictly to the repayment plan; missed payments can put the debtor back at risk of foreclosure. Therefore, Chapter 13 functions as a lifeline, offering relief and hope, but only when consistency is maintained.
What Forms Must Be Filed to Address Arrearages?
Filing requires Schedule D (secured debts), Schedule J (monthly expenses), and Official Form 113 (Chapter 13 plan). The plan must outline how arrears will be cured, often with specific terms of repayment and interest. Credit counseling certificates under 11 U.S.C. §109(h) must also be included. Probate court findings underscore that incomplete or inaccurate forms often delay hearings and invite objections. Moreover, debtors must attach detailed mortgage statements confirming arrearage balances. Accordingly, precise documentation ensures the acceptance of the plan by both the trustee and creditors.
Can Mortgage Arrearages Be Reduced in Chapter 13?
Mortgage arrearages cannot be reduced if they involve a primary residence, as 11 U.S.C. §1322(b)(2) prohibits modification of first-lien mortgages. Nevertheless, Chapter 13 allows arrears to be repaid over time without additional penalties or foreclosure. Conversely, junior liens may be stripped if property values fail to support them, offering indirect relief. Data-driven insights reveal that lien stripping remains a common practice in California, primarily due to fluctuating real estate valuations. Accordingly, while arrears remain payable, Chapter 13 mitigates the immediate pressure of lump-sum repayment.
What Happens If Payments Fall Behind During the Plan?
Failure to stay current on both ongoing mortgage payments and arrearage installments puts debtors at risk. A case illustrates this risk: Karen entered Chapter 13 with hopes of saving her home, but failed to budget for the rising costs of medical expenses. Within 18 months, she fell behind on trustee payments, and the lender resumed foreclosure proceedings. Nevertheless, another client, Samuel, carefully adjusted his lifestyle, eliminated unnecessary expenses, and completed his five-year plan. Today, Samuel retains his home and maintains stable finances. Accordingly, Chapter 13 success hinges on discipline and accurate budgeting.
What Are the Advantages of Addressing Arrearages Through Chapter 13?
Advantages include:
- Stopping foreclosure immediately through the automatic stay
- Spreading arrearages over three to five years
- Retaining property while curing defaults
- Restructuring junior liens if property values allow
Moreover, Chapter 13 provides peace of mind by consolidating obligations into a single trustee-managed plan. Accordingly, homeowners transition from chaotic missed deadlines to an orderly system of payments.
What Are the Disadvantages of Curing Mortgage Arrearages in Chapter 13?
Disadvantages include lengthy repayment commitments, stringent trustee oversight, and the requirement to maintain ongoing mortgage payments in addition to arrearage installments. Credit reporting under the Fair Credit Reporting Act, 15 U.S.C. §1681c, lasts seven years. Accordingly, debtors must accept reduced credit access for an extended period. Nevertheless, the ability to save a home outweighs these drawbacks for many families. Conversely, failure to remain disciplined often results in dismissal and renewed foreclosure pressure.
How Do Bankruptcy Statistics Relate to Mortgage Arrearages?
Analysis of recent trends indicates:
- 36% of California bankruptcy filings in 2023 were Chapter 13
- Chapter 13 filings frequently involve mortgage arrearages as the central issue
| Year | Chapter 7 | Chapter 13 |
|---|---|---|
| 2021 | 28,744 | 15,933 |
| 2022 | 31,204 | 17,089 |
These figures, reported by U.S. Courts, underscore the importance of Chapter 13 in addressing mortgage arrearages. Accordingly, debtors primarily use Chapter 13 to retain their homes rather than discharge unsecured obligations.
What Role Do California Exemptions Play?
California homestead exemptions, as outlined in Code of Civil Procedure §704, shield equity from liquidation. Equity is the difference between the market value of the property and the amount of debt secured by the property. As of 2021, exemption levels reach up to $678,391, depending on the county median home price. This protection ensures debtors can pursue Chapter 13 without losing significant property value. Moreover, exemptions determine whether Chapter 7 liquidation remains feasible or whether Chapter 13 is the only practical option. Accordingly, exemptions have a direct influence on the treatment of mortgage arrearages.
When Should Homeowners Consider Chapter 13 for Mortgage Arrearages?
Homeowners facing mortgage arrearages should consider filing for Chapter 13 before foreclosure proceedings advance beyond initial notices. Early filing increases flexibility and reduces legal obstacles. Based on my years of experience, households that file promptly tend to retain greater leverage in negotiations with lenders. Conversely, delay often results in rushed filings and fewer options for repayment. Therefore, proactive consultation with a bankruptcy attorney ensures stronger planning and preservation of property, empowering homeowners to take control of their situation.
How Does Chapter 13 Deliver Stability After Mortgage Arrearages?
John and Melissa’s story is a testament to the potential of Chapter 13. They filed for Chapter 13 and included their six months of arrears in the repayment plan. Over the course of five years, they steadily paid down their arrears while staying current on their new mortgage payments. The foreclosure notices stopped, stability returned, and their children grew up without fear of losing the home. Chapter 13 provided the structure they needed, converting crisis into recovery. Their success story should inspire other homeowners facing similar challenges, showing them that addressing mortgage arrearages through Chapter 13 can restore security and stability to struggling families.
Just Two of Our Awesome Client Reviews:
George Covarrubias
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“I was terrified of losing my house after falling behind on payments. Chapter 13 gave me a chance to catch up without having to deal with impossible lump sums. The process was clear, and step by step, I kept my home.”
Linden Emery:
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“Mortgage arrears nearly pushed my family into foreclosure. Filing for Chapter 13 allowed me to repay everything in a manner that matched my income. I now have stability and peace knowing my home is safe.”
Save your home before the lender takes it away.
Protect equity, cure arrears, and stop foreclosure today. Chapter 13 creates breathing space and puts you back in control. The law exists to protect families from losing everything overnight.
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Citations:
California Code of Civil Procedure §704.
11 U.S.C. §§362, 109(h), 1322(b)(2), 113.
U.S. Courts Bankruptcy Statistics, 2023.
Fair Credit Reporting Act, 15 U.S.C. §1681c.
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