How to Save Your Home from Foreclosure
- Falling behind on your mortgage payments could result in your home being foreclosed on.
- Filing for Chapter 13 bankruptcy could stop a foreclosure right away because it immediately stops collection efforts.
- Chapter 13 bankruptcy could give you time to work out a payoff plan.
Worrying about foreclosure can take over every waking thought and make it hard to envision a way forward. If that’s where you are, stay calm.
In fact, many people turn to a specific strategy to save their home, even after they’ve fallen behind on payments. Chapter 13 bankruptcy could be the path that helps you regain control and keep your home.
Could Chapter 13 Help Save Your Home From Foreclosure?
People file for Chapter 13 bankruptcy to save their home when they’re at risk of losing it to foreclosure. Filing Chapter 13 could work if:
The home hasn’t been foreclosed on and sold
You have the money to make ongoing monthly payments toward your mortgage
Here’s how Chapter 13 works. This form of bankruptcy doesn’t require you to give up your assets (in a Chapter 7 bankruptcy, the court might sell some of the things you own and give the money to your creditors). When you file for Chapter 13, you must make a reasonable payment plan to repay most or even all of what you owe. The payment plan lasts five years (three years if you are low income).
You can generally include past due mortgage payments in your plan. You’ll need to make all current and future mortgage payments on time going forward, but you can fold past payments into your payment plan.
Chapter 13 could make it easier to get caught up on your past due mortgage payments since you’re spreading out the payments rather than having to come up with a large lump sum. It could be a way to keep your house.
How Does Chapter 13 Help Stop Foreclosure?
A Chapter 13 bankruptcy filing could actually help save your home in several ways.
Automatic stay
First, when you file for Chapter 13 bankruptcy, an automatic stay goes into effect. This means creditors have to stop collection activities—including foreclosure proceedings.
Stopping the foreclosure process, at least temporarily, buys you some time to work out a plan to save your property.
Repayment plan
As part of the Chapter 13 bankruptcy filing, you’ll create a three- or five-year plan to repay creditors at least some of what you owe. The repayment plan could include several types of debt, such as past-due mortgage payments.
The court will review and approve your payment plan.
Debt reduction
Your repayment plan is intended to make more affordable monthly payments. Restructuring your debt through the bankruptcy filing could help free up more money to cover your mortgage costs. You might be able to reduce or eliminate unsecured debts like credit cards and medical bills, which are paid after secured debts like your mortgage.
Future mortgage payments must be paid in full. However, you can typically include past-due mortgage payments. A payment plan spares you having to pay the total amount at once.
Fee challenge
You could argue that your lender has charged excessive or incorrect fees during your bankruptcy. If you make these arguments successfully, it could mean you pay back a lower amount under your Chapter 13 repayment plan. Borrowers have successfully challenged:
Excessive or unauthorized fees
Misapplied payments
Inflated arrears
Incorrect interest calculations
Loan modification
Even after you file Chapter 13, you still have the option of working with your lender to try for a loan modification or other plan that helps you keep your home. If you can come to an agreement with your lender to modify your payments going forward, it could be easier to pay for your home over the long term.
Could Chapter 13 Bankruptcy Help You Save Your Home?
Many Chapter 13 bankruptcy filings fail because borrowers have a hard time sticking to the repayment plan.
Two factors put you in a solid position to keep your home using a Chapter 13 bankruptcy filing:
Steady income
Consistent payments for the entire plan
If you missed payments in the past because of a temporary financial hardship and now things are back on track, sticking to your payment plan could help you keep your home.
If you don't think you’ll be able to make consistent, on-time payments, Chapter 13 bankruptcy may not be a suitable strategy for you. Scout all the debt relief program options to find the one that will work best for you.
Author Information
Written by
Kimberly Rotter
Kimberly Rotter is a financial counselor and consumer credit expert who helps people with average or low incomes discover how to create wealth and opportunities. She’s a veteran writer and editor who has spent more than 30 years creating thousands of hours of educational content in every possible format.
Reviewed by
Christy Bieber
Christy Bieber has been writing about personal finance and law for 16 years. She has a JD from UCLA School of Law with a focus on business law, and a BA in English, Media & Communications from the University of Rochester, as well as a Certificate of Business Administration.
Does Chapter 13 bankruptcy take all your money?
No. Chapter 13 bankruptcy doesn’t take all your money. You’ll enter into a three- or five-year repayment plan that’s based on your income. Many people struggle to make the payments, but for some people, Chapter 13 bankruptcy is a successful way to resolve debt.
Can you stop a foreclosure with Chapter 13?
Yes, filing for Chapter 13 bankruptcy temporarily stops all collection activities, including foreclosure. When you file for bankruptcy, an automatic stay goes into effect to pause collection activities. This gives you some time to negotiate a loan modification or to get current on your loan.
You can also repay past due payments as part of your Chapter 13 repayment plan. You’ll need to make all future mortgage payments on time.
Is there a way to avoid foreclosure?
Yes. You have options to avoid foreclosure as long as your house hasn’t yet been foreclosed on and sold. You could talk with your lender about loan modification, forbearance, or repayment plans. You could also file Chapter 13 bankruptcy, which can:
Immediately pause collections activity, including foreclosure
Enroll past due mortgage payments into your bankruptcy payment plan