Curing Home Mortgage Defaults Under A Subchapter V Plan (In re Koetters)

By: Donald L Swanson

Defaults on home mortgage loans are frequently cured under Chapter 13 plans.

But what about defaulted home mortgages in Subchapter V? 

• Here is an opinion dealing with such question: In re Koetters, Case No. 25-80895, Central Illinois Bankruptcy Court (decided May 29, 2026; Doc. 95).

What follows is a summary of the Koetters opinion.

Home Mortgage Facts

Husband and wife file a voluntary bankruptcy to save their home.

Debtors’ bankruptcy filing is under Subchapter V because their student loan debts exceed $630,000, which amount renders them ineligible for Chapter 13.

Before filing bankruptcy, Debtors default on their long-term home mortgage. At bankruptcy filing, they are $13,000 in arears on a $125,000 debt to Mortgage Creditor.

Debtors’ Subchapter V plan proposes to “cure and maintain” the mortgage through payments from future income:

• the pre-petition arrearage will be paid “within five years . . . without interest”;
• all other terms of the original mortgage note will remain unchanged; and
• Mortgage Creditor will retain its lien.

Debtors’ plan identifies Mortgage Creditor as an “impaired” creditor.  Mortgage Creditor votes to reject the plan and objects to the plan’s confirmation.

Anti-Modification Clauses in Bankruptcy Code

Chapter 11 contains an “anti-modification” clause for home mortgages (contained in § 1123(b)(5)), which is identical to a corresponding clause in Chapter 13 (contained in § 1322(b)(2)). Both provide:

• “The plan may . . . modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence.”

Despite such categorical anti-modification language, some changes to the parties’ original bargain are permitted in both Chapter 11 and Chapter 13. For example:

• the automatic stay of § 362 prevents a lender from foreclosing a defaulted mortgage, contrary to the contractual provisions thereof; and
• both Chapter 11 and Chapter 13 allow a debtor to cure a default on a home mortgage to “de-accelerate” the debt and restore the parties to their original position.

Such examples fall outside the anti-modification clauses in both chapters because they are separately authorized by the Bankruptcy Code.  So, the anti-modification clauses in Chapter 11 and Chapter 13 mean only that future payments on home mortgages cannot be modified.

Cure Rights under a Chapter 11 Plan

A “cure” of a defaulted home mortgage restores matters to the status quo ante. Notably, “cure” is the end, not the means.

A pre-petition default on a home mortgage loan may be cured in Chapter 11, notwithstanding Chapter 11’s “anti-modification” clause, because of this specific authorization in §1123(a)(5)(G):

• “a plan shall . . . (5) provide adequate means for the plan’s implementation, such as . . . (G) curing or waiving of any default” (emphasis added).

While § 1123(a)(5)(G) does not specify a time limitation for accomplishing a cure, the time rule is this:

• an individual debtor’s plan may impair an objecting home mortgagee by curing the default on or before the time the debtor receives a discharge.

Such a rule will return the parties to the status quo ante by the time Debtors exit bankruptcy, which is equivalent to the power given to Chapter 13 debtors in §1322(b)(3).

Conclusion

That’s how home mortgage defaults are handled in Subchapter V, according to the Central Illinois Bankruptcy Court. 

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