For many homeowners, foreclosure is one of the most frightening financial experiences they can face. Falling behind on mortgage payments can quickly lead to legal action by a lender, placing a family’s home at risk.
Fortunately, federal bankruptcy law provides powerful protections that can stop foreclosure and give homeowners an opportunity to regain financial stability. One of the most effective tools available is Chapter 13 bankruptcy, which allows individuals to halt foreclosure proceedings and repay missed mortgage payments through a structured repayment plan.
In our experience representing homeowners across New Jersey, many people believe that once a foreclosure lawsuit has begun, saving their home is no longer possible. In reality, Chapter 13 bankruptcy can often stop foreclosure even after a judgment has been entered, provided the sheriff’s sale has not yet occurred.
This article explains how Chapter 13 bankruptcy works and how it can help homeowners stop foreclosure in New Jersey.
Understanding the Foreclosure Process in New Jersey
New Jersey is a judicial foreclosure state, meaning lenders must file a lawsuit before foreclosing on a property. The process is governed largely by the New Jersey Fair Foreclosure Act, N.J.S.A. 2A:50-53 through 2A:50-68.
The typical foreclosure timeline includes several stages.
- Missed Mortgage Payments - Foreclosure usually begins after a homeowner falls behind on mortgage payments.
- Notice of Intent to Foreclose - Before filing a foreclosure complaint, a lender must send a Notice of Intent to Foreclose at least 30 days in advance under N.J.S.A. 2A:50-56.
- Foreclosure Complaint - If the default is not cured, the lender may file a foreclosure complaint in the Superior Court of New Jersey, Chancery Division.
- Judgment of Foreclosure - If the lender succeeds in the foreclosure lawsuit, the court may issue a Final Judgment of Foreclosure.
- Sheriff’s Sale - Following judgment, the property may be scheduled for sale by the county sheriff.
Even at later stages of this process, homeowners may still have options to stop foreclosure, including filing Chapter 13 bankruptcy.
How Chapter 13 Bankruptcy Stops Foreclosure
When a Chapter 13 bankruptcy petition is filed, the automatic stay immediately goes into effect.
The automatic stay arises under 11 U.S.C. § 362(a) and halts most collection activity against the debtor or the debtor’s property.
This includes:
- Foreclosure proceedings
- Sheriff’s sales
- Collection lawsuits
- Wage garnishments
- Bank levies
Once the bankruptcy case is filed, creditors must stop foreclosure activity unless they obtain relief from the stay from the bankruptcy court.
You can learn more about the automatic stay from the United States Courts website.
Using Chapter 13 to Catch Up on Mortgage Payments
Chapter 13 bankruptcy allows individuals with regular income to reorganize their debts through a repayment plan lasting three to five years.
One of the most important protections in Chapter 13 is the ability to cure mortgage arrears while continuing to maintain regular payments.
Under 11 U.S.C. § 1322(b)(5), a debtor may cure a default on a long-term secured debt, such as a home mortgage, while continuing to make current payments.
Additionally, 11 U.S.C. § 1322(c)(1) provides that a debtor may cure a default on a lien secured by the debtor’s principal residence until the property is sold at a foreclosure sale conducted in accordance with applicable non-bankruptcy law.
This means that many homeowners may still save their home even after a foreclosure complaint or judgment has been entered.
The New Jersey Appellate Division explained this distinction in Gonzalez v. Wilshire Credit Corp., 411 N.J. Super. 582 (App. Div. 2010). The court clarified that curing a mortgage default requires paying only the arrears necessary to reinstate the loan, rather than paying the entire mortgage balance.
Repaying Mortgage Arrears Through a Chapter 13 Plan
A Chapter 13 repayment plan allows homeowners to spread out past-due mortgage payments over several years.
During the plan:
- Regular mortgage payments continue
- Arrears are repaid through the Chapter 13 trustee
- Other debts may also be reorganized
Under 11 U.S.C. § 1322(e), the amount necessary to cure a default is determined by the underlying loan agreement and applicable nonbankruptcy law.
Plan confirmation requirements are governed by 11 U.S.C. § 1325, which requires that:
- Secured creditors retain their liens
- Payments provide adequate protection
- Creditors receive at least the value of their allowed secured claim.
Bankruptcy Loss Mitigation Programs in New Jersey
In addition to curing arrears, homeowners may seek relief through the Bankruptcy Loss Mitigation Program available in the United States Bankruptcy Court for the District of New Jersey.
The loss mitigation program allows debtors and lenders to negotiate alternatives within the bankruptcy case, including:
- Mortgage loan modifications
- Repayment restructuring
- Interest rate adjustments
- Extended loan terms
These programs often allow homeowners to make their mortgage more affordable while continuing their Chapter 13 repayment plan.
You can find foreclosure prevention resources through the U.S. Department of Housing and Urban Development.
Benefits of Using Chapter 13 to Stop Foreclosure
Chapter 13 bankruptcy offers several advantages for homeowners facing foreclosure.
- Immediate Protection - The automatic stay can stop foreclosure proceedings immediately.
- Time to Catch Up on Payments - Mortgage arrears may be repaid over three to five years.
- Opportunity for Loan Modification - Loss mitigation programs may allow borrowers to negotiate improved loan terms.
- Debt Consolidation - Chapter 13 may also address credit card debt, medical bills, personal loans, and certain tax obligations.
When Is It Too Late to Stop Foreclosure?
Chapter 13 bankruptcy may stop foreclosure at several stages:
- After a foreclosure complaint
- After a judgment of foreclosure
- Shortly before a sheriff’s sale
However, once the foreclosure sale occurs, the ability to cure the mortgage default may be lost.
For this reason, early legal advice is critical.
Speak With a New Jersey Bankruptcy Attorney
Facing foreclosure can feel overwhelming, but legal options may still be available.
Chapter 13 bankruptcy has helped many New Jersey homeowners stop foreclosure, catch up on mortgage payments, and keep their homes while restructuring their finances.
If you are facing foreclosure in New Jersey, consulting with an experienced bankruptcy attorney can help you determine whether Chapter 13 bankruptcy may provide the relief you need.
Early action can make the difference between saving a home and losing it at a sheriff’s sale.
Contact the experienced bankruptcy lawyers at Scura, Wigfield, Heyer, Stevens & Cammarota today to schedule a free consultation.
