Bankruptcy
Stopping Foreclosure with Bankruptcy
The Automatic Stay
When you file bankruptcy, the automatic stay immediately stops foreclosure sales, collection calls, and most creditor actions. The lender must stop—but they can file a motion to lift the stay. In Chapter 7, if you cannot cure the default, the court may grant the motion and foreclosure can proceed.
Chapter 7 and Foreclosure
Chapter 7 discharges personal liability on the mortgage (in a recourse state, deficiency may be discharged). It does not eliminate the lien—the lender can still foreclose. Chapter 7 can buy time (often 3–4 months) to negotiate a loan modification or short sale, but it is not a long-term solution for keeping the home if you are significantly behind.
Chapter 13 and Foreclosure
Chapter 13 is designed to help you catch up. You propose a plan that pays mortgage arrears over 3–5 years while you stay current on ongoing payments. The automatic stay remains in effect as long as you comply. Many homeowners save their homes through Chapter 13.
Act Quickly
If foreclosure is imminent, consult a bankruptcy attorney immediately. Filing before a sale date can stop the sale. Waiting too long can limit your options.
Frequently Asked Questions
Does filing bankruptcy stop foreclosure?
Yes. The automatic stay goes into effect immediately upon filing and stops foreclosure proceedings. However, the lender can ask the court to "lift" the stay. In Chapter 7, the stay may only delay foreclosure if you cannot catch up. In Chapter 13, you can create a plan to catch up on arrears over 3–5 years.
Can I keep my house in Chapter 7?
If you are current on payments and your equity is exempt, you may keep the house—but you must continue paying the mortgage. If you are behind, Chapter 7 does not let you catch up; the lender can eventually foreclose after the stay is lifted. Chapter 13 is often better for saving a home.
How does Chapter 13 save my home?
Chapter 13 lets you pay mortgage arrears over the life of the plan (3–5 years) while staying current on regular payments. As long as you comply with the plan, the lender cannot foreclose. This can save your home if you have regular income.
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