How the cure provision works
When you fall behind on mortgage payments, the missed amounts are called "arrears." In a typical foreclosure, the lender demands you pay all arrears at once (plus fees) or lose the house. Most people cannot come up with that money.
Chapter 13 changes the equation. Under 11 U.S.C. § 1322(b)(5), your repayment plan can provide for curing the default over the life of the plan while you resume making regular payments going forward. The lender cannot foreclose during this time because of the automatic stay.
11 U.S.C. § 1322(b)(5): The plan may "provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final payment under the plan is due."
What the numbers look like
Here is a realistic example of how arrears curing works in practice:
Scenario: Your mortgage payment is $1,400/month. You are 10 months behind -- $14,000 in arrears (plus $2,000 in lender fees, for $16,000 total).
Outside bankruptcy: The lender demands $16,000 immediately or proceeds with foreclosure.
In Chapter 13 (60-month plan): You pay $1,400/month to the lender going forward, plus $267/month through the plan to cure the $16,000 in arrears. At the end of 5 years, the arrears are fully cured.
What counts as arrears?
The arrears amount typically includes:
- Missed principal and interest payments
- Late fees assessed by the lender
- Escrow shortfalls (property taxes and insurance advanced by the lender)
- Reasonable attorney fees incurred by the lender pre-petition
The exact arrears amount is set by the lender's proof of claim filed in your case. Your attorney can object to the claim if the amount is incorrect.
Requirements for a successful arrears cure
- Make every plan payment. The Chapter 13 trustee distributes arrears payments to the lender. Missing plan payments jeopardizes the entire arrangement.
- Make every post-petition mortgage payment. You must stay current on ongoing mortgage payments while the plan is active. Falling behind again is the most common reason lenders seek relief from stay.
- Complete the plan. When the plan is completed and all arrears are cured, the lender must treat the loan as current. The mortgage continues on its original terms.
- Maintain homeowner's insurance. Letting your insurance lapse is a common default trigger.
Post-petition defaults are dangerous. If you fall behind on mortgage payments after filing Chapter 13, the lender can file a motion for relief from stay. If granted, the automatic stay is lifted for the house and the lender can resume foreclosure -- even while the rest of your case continues.
Arrears cure vs. loan modification
Arrears curing and loan modification are two different tools, and they can work together:
- Arrears cure -- pays off the missed payments through the plan; the original loan terms stay the same
- Loan modification -- changes the original loan terms (lower rate, extended term, reduced principal); negotiated directly with the lender, often through mediation programs
Many bankruptcy courts have loss mitigation or mortgage modification mediation programs that allow you to pursue a modification while your Chapter 13 case is pending. A successful modification can reduce your going-forward payment, making the overall plan more affordable.
Chapter 13 is the only legal mechanism that forces a lender to accept a payment plan on mortgage arrears. Outside of bankruptcy, the lender has no obligation to accept anything less than full payment of arrears. The cure provision under § 1322(b)(5) is a statutory right -- not a favor from the bank.