Chapter 13 bankruptcy allows most homeowners to keep their house by restructuring missed payments into a repayment plan. Learn the eligibility rules, mechanics, and risks.

Chapter 13 bankruptcy was created in part to give homeowners facing foreclosure a federal legal tool to save their property. In a successful Chapter 13 case, you keep your house by catching up on missed mortgage payments through a court-approved repayment plan while continuing to make regular ongoing payments. At the end of the plan period, your mortgage is current, and the home is yours.

This outcome is not guaranteed, and it requires meeting specific eligibility requirements and sustaining the plan through its entire duration. But for homeowners with steady income who want to keep their property, Chapter 13 is the primary bankruptcy tool available.

Eligibility to Keep Your Home Through Chapter 13

To keep your home through Chapter 13, you must meet several requirements. First, your total secured debt must be below the Chapter 13 debt limit and your unsecured debt must also be within applicable limits. These limits are periodically adjusted.

Second, you must have regular income sufficient to fund a repayment plan. The plan must pay all mortgage arrears in full over the plan period, pay priority creditors in full, pay at least as much to unsecured creditors as they would receive in a Chapter 7 liquidation, and leave enough for you to make regular ongoing mortgage payments outside the plan. If your income does not support all of these obligations simultaneously, the plan will not be confirmed.

Third, the home must be your primary residence. Chapter 13 provides specific protections for a debtor’s principal residence under Section 1322(b)(5), which is the provision that allows arrears to be cured over time. Investment properties do not receive the same treatment.

Fourth, you must complete a credit counseling requirement before filing.

How the Repayment Plan Handles Mortgage Arrears

In Chapter 13, mortgage arrears are treated as a secured claim that must be paid in full over the plan period. You continue making regular monthly mortgage payments directly to your lender as they become due post-filing. The arrears, along with applicable fees and costs as of the filing date, are paid to the bankruptcy trustee through monthly plan payments, and the trustee distributes those funds to the lender.

The lender must file a proof of claim specifying the total arrears amount, including any attorney fees, late charges, or other costs that are allowed under the loan documents and applicable law. You have the right to object to the lender’s proof of claim if the amounts are disputed.

At the end of the plan, when all plan payments are complete, the lender is required to treat the mortgage as if no default had occurred. The loan continues under the original terms, and the home is yours.

Risks of Plan Failure

The biggest risk in a Chapter 13 case aimed at keeping the home is failing to complete the plan. If you miss trustee payments, the trustee will file a motion to dismiss the case. If you miss regular mortgage payments after filing, your lender will file a motion for relief from the automatic stay.

A dismissed Chapter 13 case ends the stay immediately. If the case is dismissed after months of plan payments, any arrears payments you made may have partially reduced what you owe, but the home is once again unprotected and the lender can resume foreclosure. Future bankruptcy filings will face the repeat-filing restrictions discussed in prior articles.

Plans can also fail because of changed circumstances. Job loss, illness, or a sudden expense can make it impossible to maintain plan payments. Chapter 13 plans can be modified if your income decreases, but there are limits to how much modification is possible. If your income drops so significantly that you can no longer fund a plan that pays all required amounts, the case may be converted to Chapter 7 or dismissed.

Long-Term Outcomes

Homeowners who successfully complete a Chapter 13 plan emerge with their mortgage current, their unsecured debts discharged, and their home intact. This is a genuinely beneficial outcome for people who have the income to sustain it.

The Chapter 13 filing remains on your credit report for seven years. During the plan period, you will not be able to take on new significant debt without court approval. After the plan concludes and the discharge is entered, you can begin rebuilding your credit.

For homeowners who value their home, have equity in it, and have the income to support a plan, Chapter 13 is an effective and legally sound tool. The success depends almost entirely on your ability to sustain the required payments over three to five years.