Chapter 7 vs Chapter 13 in New York: Which One Protects Your Home?

Filing a bankruptcy case ordinarily triggers the automatic stay under 11 U.S.C. § 362, and a scheduled foreclosure auction is halted without any separate court order. That much is the same in both chapters — subject to two limits covered further down: a repeat filer's stay can expire after 30 days or never take effect at all, and a case filed after the auction has already happened generally cannot reach the house.

What differs is what happens next. Chapter 7 is a liquidation. It has no mechanism to force a lender to accept past-due payments over time. A discharge does not extinguish a lien — secured creditors keep their rights against the collateral even after a discharge is granted. Personal liability on the note goes away. The mortgage stays attached to the house.

Timing matters too. In a typical Chapter 7 the discharge issues roughly 60 to 90 days after the date first set for the meeting of creditors, and under § 362(c)(2) the stay ends at the earliest of case closing, dismissal, or the discharge being granted or denied. A Chapter 7 generally buys a few months of breathing room in a New York foreclosure. It does not repair the loan.

It can still help indirectly. Discharging credit cards and medical debt sometimes frees enough monthly income to make a modification affordable — a budget fix, not a mortgage fix. One note on scope before going further: this office does not file bankruptcy petitions. What follows is general background, so that the choice between the two paths is an informed one.

Chapter 13 contains the provision in the Bankruptcy Code built for this situation. Under § 1322(b)(5), a plan may cure a default within a reasonable time while maintaining payments on a debt whose last payment comes due after the plan ends. A 30-year mortgage is the paradigm case: the arrears — missed payments, escrow shortfall, late fees, the lender's foreclosure costs — are paid through the plan, while the regular monthly payment resumes and continues.

Two limits are routinely glossed over:

• Chapter 13 does not lower a normal mortgage payment. Section 1322(b)(2) bars modifying the rights of a creditor whose claim is secured only by the debtor's principal residence. Interest rate, principal balance and monthly payment are off limits; only the arrears are restructured. A narrow exception at § 1322(c)(2) applies where the loan's last scheduled payment falls due before the final plan payment.
• A second mortgage comes off only if it is completely underwater. In In re Pond, 252 F.3d 122 (2d Cir. 2001), the Second Circuit held that the anti-modification shield protects a lender only where the residence retains enough value, after senior liens, for the claim to be at least partly secured. If the second lien is even slightly in the money, it cannot be stripped.

Then do the arithmetic — that is what decides whether a plan survives. Section 1322(d) caps the plan at five years if income is at or above the applicable New York median family income, and at three years if below, unless the court approves a longer period for cause. To illustrate the mechanics only: $30,000 of arrears spread across 60 months adds roughly $500 a month — on top of the resumed mortgage payment, plus trustee commission and attorney fees paid through the plan. Every household's arrears, plan length and budget produce a different figure. Payments start no later than 30 days after the plan is filed or the order for relief, whichever is earlier, which is before any judge has confirmed anything (§ 1326(a)(1)).

Three screens come up constantly, and two of them are widely misdescribed.

The means test is a Chapter 7 screen, not a Chapter 13 gate. Section 707(b) allows a court to dismiss a primarily-consumer-debt Chapter 7 case as an abuse. Where annualized current monthly income is at or below the applicable New York median family income, no party in interest may bring a means-test motion under § 707(b)(2), so below-median filers effectively skip the test. For cases filed on or after April 1, 2026, the New York figures are $73,272 for one earner, $92,902 for two people, $115,579 for three and $139,040 for four, plus $11,100 for each additional person. These tables are revised periodically; what governs is the figure in effect on the filing date.

Chapter 13 uses debt limits instead. Section 109(e) requires an individual with regular income and caps unsecured debts at $526,700 and secured debts at $1,580,125 (effective April 1, 2025). Mortgage debt counts toward the secured cap, which matters at Nassau and Suffolk price levels.

The homestead exemption does not stop a mortgage foreclosure. CPLR 5206 protects home equity above liens and encumbrances from money judgments. For the downstate tier — Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester and Putnam — the amount is $204,825, effective April 1, 2024, with the next scheduled adjustment April 1, 2027. A mortgage is a lien you granted voluntarily, and the exemption does not defeat it. It shields equity from other creditors and shapes whether a Chapter 7 trustee would sell a house with equity.

General bankruptcy content says "file before the sale date." In New York the line is sharper. It is the auction.

Section 1322(c)(1) allows a default on a principal-residence lien to be cured until the residence is sold at a foreclosure sale conducted under applicable state law. The Second Circuit held in In re Rodgers, 333 F.3d 64 (2d Cir. 2003), that delivery of the referee's deed is a ministerial act that does not impair a property interest the debtor still holds. Applying that rule in May 2026, a New York bankruptcy court in In re Herisse (Bankr. S.D.N.Y.) held that a Chapter 13 filed after the auction did nothing to reverse the extinguishment of the homeowner's equity of redemption — the house never became property of the estate, so the automatic stay did not reach it. New York also has no statutory right of redemption after the sale.

Repeat filings carry their own traps. If one prior case was dismissed within the past year, § 362(c)(3) terminates the stay as to the debtor on the 30th day unless the court extends it on a showing that the new case was filed in good faith — and New York courts do not agree on how far that termination reaches, with at least one Eastern District decision applying it to the collateral itself. If two or more cases were dismissed in that year, § 362(c)(4) means the stay does not go into effect at all unless the debtor moves for and obtains one. Where a filing is part of a scheme to delay, hinder or defraud creditors involving the property, § 362(d)(4) permits an order that binds any case filed for the next two years. And voluntarily dismissing a case after a lender has moved for stay relief triggers a 180-day refiling bar under § 109(g)(2).

New York is a judicial foreclosure state, and that changes the calculation. A lender cannot sell your house without suing you and obtaining a judgment from a judge — on Long Island, that means Nassau or Suffolk County Supreme Court. Every step is contestable.

Before filing suit, the servicer must send the RPAPL 1304 ninety-day notice; strict compliance is a condition precedent, and failure can require dismissal of the complaint. The summons and complaint must carry the RPAPL 1303 "Help for Homeowners in Foreclosure" notice on differently colored paper in the required type sizes, plus a CPLR 3012-b attorney certificate of merit. Under CPLR 3408 the court must hold a settlement conference within sixty days after proof of service is filed, both sides must negotiate in good faith, and each side's representative must appear with authority to settle. Missing the answer deadline is not necessarily the end either: CPLR 3408(m) lets a defendant who appears at that conference file an answer within thirty days of the first appearance, with a presumed reasonable excuse and no substantive defenses deemed waived.

That is the space where foreclosure defense does its work, and where a loan modification is negotiated. Fannie Mae's Flex Modification is designed to target roughly a 20 percent reduction in the monthly principal-and-interest payment; FHA's permanent loss mitigation options, which servicers were required to make available beginning February 2, 2026, target about a 25 percent reduction in that payment. Neither reduces what is owed, and neither is automatic — eligibility turns on the investor, the loan and the household's finances. Where keeping the home is not realistic, a short sale may end the matter on negotiated terms rather than at auction; whether it also releases personal liability for any shortfall depends on express language in the lender's approval letter.

This firm does not file bankruptcy petitions. If Chapter 13 is genuinely the right tool — steady income, substantial arrears, a lender that will not restructure — speak with a bankruptcy attorney, and do it well before any scheduled auction. Filing that kind of case alone is rarely a realistic plan: in an analysis of federal court data covering 123,185 Chapter 13 cases closed between fiscal 2010 and fiscal 2016, 2.3 percent of cases filed without an attorney completed a repayment plan, compared with 41.5 percent of cases filed with one.

What this office does is the other half of the problem: representing homeowners at the proceedings in the foreclosure action, and negotiating directly with the lender for a modification, repayment plan, lien settlement or short sale. Which path fits often becomes clear in a single conversation. This page is general information, not advice about your particular case. Consultations are free — call 516-719-4144 or reach the office through the contact page.

Will filing Chapter 7 stop a foreclosure sale in New York?

Ordinarily yes, but only temporarily. The automatic stay halts a scheduled auction when the case is filed — though a repeat filer's stay can expire after 30 days or never take effect. Chapter 7 has no way to cure arrears, and the mortgage lien survives the discharge. The discharge typically issues about 60 to 90 days after the date first set for the meeting of creditors, and the stay ends then. The lender can resume the foreclosure at that point.

Does Chapter 13 lower my mortgage payment?

No. Section 1322(b)(2) prohibits modifying a claim secured only by your principal residence, so the interest rate, principal balance and monthly payment stay as written. Chapter 13 restructures the arrears — missed payments, escrow shortfall and fees — over three to five years while the regular payment resumes. A narrow exception applies where the loan's last scheduled payment falls due before the plan ends.

How late is too late to file if my house is already scheduled for auction?

In New York the operative line is the auction itself, not the referee's deed and not the eviction. Under Section 1322(c)(1) a default on a principal-residence mortgage can be cured until the residence is sold at the foreclosure sale. Once the property is sold, the equity of redemption is extinguished, and a bankruptcy filed afterward generally cannot reach the house. New York has no post-sale redemption period.

Does the New York homestead exemption protect my house from the bank?

Not from your mortgage lender. CPLR 5206 shields home equity above existing liens and encumbrances from money judgments. For the downstate counties — Kings, Queens, New York, Bronx, Richmond, Nassau, Suffolk, Rockland, Westchester and Putnam — the figure is $204,825, effective April 1, 2024. A mortgage is a lien you agreed to, so the exemption does not defeat it. It protects equity from other creditors and matters in bankruptcy exemption planning.

How long does a bankruptcy stay on my credit report?

By law, up to ten years. The Fair Credit Reporting Act permits reporting for ten years from the order for relief and draws no distinction between chapters. The three national credit bureaus, as a voluntary policy, remove Chapter 13 records seven years from the filing date and Chapter 7 records at ten. That is bureau practice rather than a legal right, and the clock runs from filing, not discharge.