Can I Still Use the Mortgage Deduction On Taxes If My House is Being Paid In A Chapter 13 Bankruptcy?

If you own a home and you are paying for it through a Chapter 13 bankruptcy plan, you may be worried about your taxes. You might wonder if filing takes away your home mortgage deduction. This is a fair question. Many people count on that deduction to lower their tax bill each year.

The good news is simple. Filing Chapter 13 does not take away your right to claim the mortgage interest deduction. This article explains how it works, what to watch for in North Carolina, and what steps to take next.

The Short Answer

Yes. In most cases, you can still deduct your mortgage interest after you file Chapter 13, as long as you itemize your taxes and your loan meets IRS rules.

It does not matter if you pay the mortgage company yourself or if your Chapter 13 trustee pays them for you. You still own the home. You are still the borrower. The interest you pay still counts.

Your mortgage company should keep sending you a tax form each year. That form shows the interest you paid. You use it to claim your deduction, just like before.

How the Mortgage Deduction Works in Chapter 13

Chapter 13 bankruptcy lets you repay some or all of your debts over three to five years. It is often called the "wage earner's plan." One of its best features is that it can help you keep your home and catch up on missed mortgage payments.

When you file Chapter 13, your mortgage is usually handled one of two ways:

1. You pay the mortgage company yourself each month, outside the plan.
2. The Chapter 13 trustee pays the mortgage company for you, using money you send to the plan.

Either way, the law still treats you as the homeowner and the borrower. So the interest you pay is still your interest. That means you can still deduct it if you itemize.

The same idea applies to your property taxes and home insurance. If those are part of your monthly mortgage payment (called an "escrow"), they get paid along with your payment. If you pay them on your own, you handle them directly. In both cases, the property taxes you pay may still be deductible.

Ask Your Attorney Who Pays the Mortgage

After you file, ask your attorney one simple question: Who pays my mortgage each month, me or the trustee?

This matters for your budget. It can also matter at tax time. Knowing the answer helps you stay current and avoid confusion later.

What About Form 1098?

Each year, your mortgage company sends you a tax form called Form 1098, the Mortgage Interest Statement. This form lists:

• The mortgage interest you paid that year
• Any mortgage insurance premiums, if they apply
• Real estate taxes paid through escrow, if you have an escrow

You use this form to fill out your tax return. It does not change just because you filed Chapter 13.

A few things to remember:

• The form only shows taxes and insurance if they were part of your monthly payment.
• If you do not get your Form 1098 by early February, call your mortgage company and ask for it.
• The numbers on your Form 1098 are the same numbers the mortgage company sends to the IRS.
• If the trustee pays your mortgage company, you should still get the Form 1098. You are still the one who owns the home and owes the loan.

A Quick Note on Itemizing

You can only claim the mortgage interest deduction if you itemize your taxes. Itemizing means you list your deductions one by one instead of taking the standard deduction.

The standard deduction is a flat amount the IRS lets everyone take. For some people, the standard deduction is larger than their itemized deductions. If that is your situation, you may not use the mortgage deduction at all, with or without bankruptcy.

This is not a bankruptcy rule. It is a regular tax rule. A tax preparer can help you decide which option saves you more money.

How North Carolina Homeowners Use Chapter 13

North Carolina has a strong tradition of using Chapter 13 to save homes. The Middle District of North Carolina has one of the highest Chapter 13 filing rates in the country. In 2025, about 53% of all bankruptcy filings in that district were Chapter 13. The national average is closer to 36%.

Here is why so many North Carolina homeowners choose it.

If you are behind on your mortgage, Chapter 13 lets you catch up the missed payments over time. This is called curing your "arrears." Instead of paying everything you owe right now, you spread it out over the life of your plan. Meanwhile, you keep making your regular monthly mortgage payment.

This is one of the most powerful tools for stopping foreclosure. The automatic stay goes into effect the moment you file. It stops most collection actions, including foreclosure, while you work your plan. (See 11 U.S.C. § 362.)

And the whole time you do this, you do not lose your mortgage interest deduction. You still own your home. You are still paying your loan. The deduction still belongs to you.

North Carolina's Homestead Exemption

North Carolina also protects part of your home equity through the homestead exemption. State law lets you protect up to $35,000 of equity in the home you live in. If you are 65 or older and meet certain rules, that amount can rise to $60,000. (See N.C. Gen. Stat. § 1C-1601(a)(1).)

Keep one thing in mind. The homestead exemption is a dollar limit, not full protection of the whole house. If you have more equity than the exemption covers, the extra equity still matters in your case. A North Carolina bankruptcy attorney can review your numbers and explain how this affects you.

Chapter 7 vs. Chapter 13 and Your Home

People often ask how this compares in Chapter 7 versus Chapter 13. The mortgage deduction itself does not change between the two. If you keep your home and pay your mortgage, you can deduct the interest in either chapter.

The bigger difference is how each chapter handles a home you are behind on.

If you want help deciding, our page on Chapter 7 vs. Chapter 13 breaks down the differences in plain English. You can also learn more about Chapter 7 bankruptcy if you are not behind on your home.

What Should You Do Next?

If you own a home and you are thinking about bankruptcy, here are some calm steps you can take:

1. Gather your mortgage papers. Find your latest statement and last year's Form 1098.
2. Ask who will pay your mortgage during the plan, you or the trustee.
3. Keep proof of every payment you make, whether to the mortgage company or the trustee.
4. Watch for your Form 1098 each year and request it if it does not arrive.
5. Talk to a tax preparer about whether to itemize or take the standard deduction.
6. Talk to a bankruptcy attorney about your full situation before you decide anything.

Taking these steps helps you stay organized and avoid surprises at tax time.

We Can Help You Understand Your Options

If you are dealing with debt and worried about your home, you do not have to figure this out alone. Duncan Law can review your situation and help you decide whether Chapter 7 or Chapter 13 bankruptcy makes sense for you. We can also explain how your home, your mortgage, and your taxes fit together.

You can schedule your free consultation online any time. We serve clients in Greensboro, Charlotte, Winston-Salem, Asheville, High Point, Salisbury, and communities throughout North Carolina.

Call the office closest to you:

• Greensboro: (336) 856-1234
• Charlotte: (704) 563-1224
• Winston-Salem: (336) 245-4294
• Asheville: (828) 348-5252
• High Point: (336) 294-5800
• Salisbury: (704) 297-4000