Chapter 13 bankruptcy immediately stops foreclosure in New Jersey through the automatic stay (11 U.S.C. § 362) and provides a court-approved 3-5 year repayment plan to cure your mortgage arrears while you continue making current monthly payments. If you complete the plan, your mortgage is brought fully current and you keep your home. Chapter 13 is the most effective legal tool available to NJ homeowners who want to save their home from foreclosure.
How the Automatic Stay Stops Foreclosure
The moment your Chapter 13 petition is filed with the bankruptcy court, the automatic stay under 11 U.S.C. § 362 takes effect. This immediately halts all foreclosure activity, including pending court proceedings, scheduled sheriff’s sales, and any other collection actions. The stay remains in effect for the duration of your Chapter 13 case (3-5 years) as long as you comply with the plan requirements. The lender cannot proceed with foreclosure unless the bankruptcy court grants them relief from the stay, which requires filing a motion and demonstrating cause.
The Chapter 13 Repayment Plan
After filing, you have 14 days to submit a proposed repayment plan to the court. The plan must provide for curing your mortgage arrears (past-due payments, late fees, and the lender’s attorney fees and costs) over the 3-5 year plan period. You also resume making your regular monthly mortgage payment directly to the lender. For example, if you owe $30,000 in mortgage arrears and have a 5-year plan, approximately $500 per month of your plan payment goes toward curing the arrears (plus trustee fees). Your plan payment also addresses other debts including priority debts (taxes), secured debts (car loans), and unsecured debts (credit cards) according to the Bankruptcy Code’s priority rules.
Keeping Your Home: 11 U.S.C. § 1322(b)(5)
Section 1322(b)(5) of the Bankruptcy Code specifically authorizes Chapter 13 plans to cure defaults on long-term debts like mortgages while maintaining ongoing payments. This provision is the legal foundation for using Chapter 13 to save your home. The plan cures the default (brings you current) while you maintain regular payments going forward. At the end of the plan, your mortgage is fully current, the arrears are resolved, and you continue with your regular payment schedule as if the default never occurred.
Plan Duration: 3 or 5 Years?
The length of your Chapter 13 plan depends on your income. If your household income is below the NJ median income for your household size, you may propose a 3-year plan (though you can choose up to 5 years). If your income is above the NJ median, your plan must be 5 years. A longer plan means lower monthly payments, which can make the plan more feasible for homeowners with significant arrears.
What Happens If You Cannot Make Plan Payments
If your financial situation changes during the plan and you cannot make payments, several options exist. You can request a plan modification to reduce payments if your income has decreased. You can request a moratorium on payments for a limited period if the hardship is temporary. In extreme cases, you may qualify for a hardship discharge under 11 U.S.C. § 1328(b), which discharges remaining unsecured debts even though the plan was not completed. You may also convert to Chapter 7 if Chapter 13 is no longer feasible. However, if the case is dismissed without completing the plan, the automatic stay is lifted and the lender can resume foreclosure proceedings.
Lien Stripping in Chapter 13
An additional benefit of Chapter 13 for NJ homeowners is the ability to “strip off” wholly unsecured junior liens. If you have a second mortgage or home equity line of credit and your home’s current value is less than the balance owed on your first mortgage, the junior lien is considered wholly unsecured. Through Chapter 13, you can strip this lien off your property, converting the junior mortgage into an unsecured claim that is paid pennies on the dollar (or nothing) through the plan. At the end of the plan, the junior lien is removed from your property.
Call Friscia & Associates Today
If you are facing foreclosure in New Jersey and want to keep your home, Chapter 13 bankruptcy may be the solution. Call Friscia & Associates at (973) 500-8024 to speak with a NJ bankruptcy and foreclosure defense attorney who can evaluate whether Chapter 13 is right for your situation and help you file before it is too late.
Legal Disclaimer: The information on this page is for general informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by reading this content. Every bankruptcy case is different, and outcomes depend on the specific facts and circumstances involved. If you need legal advice, please contact our office to schedule a consultation.