One of the most common reasons many people file a Chapter 13 bankruptcy is to stop foreclosure of their home. Chapter 13 cases allow debtors to stop foreclosure with the automatic stay and to cure their mortgage arrears in their Chapter 13 plan. Chapter 13 plans last between thirty-six and sixty months, and even shorter if the debtor proposes to repay all of their debt. The plan states that a debtor will make payments to a trustee who will then take the money and pay it to the creditors as stated in the plan. Debtors can repay many types of debts in these plans including mortgage arrears. Repaying mortgage arrears in the plan allows the debtor to be current on their mortgage at the conclusion of the bankruptcy.
The actual amount paid in a Chapter 13 plan to cure mortgage arrears varies depending on where the case is filed. Section 1322(3) of The Bankruptcy Code stats that “the amount necessary to cure the default, shall be determined in accordance with the underlying agreement and applicable nonbankruptcy law.” 11 U.S.C. § 1322(3). This means that the amount needed to cure the mortgage arrears depends on the laws of the state in which the property is located and the terms of the promissory note and deed of trust. In Texas, most promissory notes and deeds of trust do not provide for repayment of mortgage arrears with interest. As a result, the amount that must be paid in a Chapter 13 bankruptcy plan to cure mortgage arrears is usually the principal amount of the missed payments and any costs incurred by the mortgage company, such as attorney’s fees.