Will a Bankruptcy Stop a Foreclosure?
Yes, filing for bankruptcy will stop the sale of property AKA foreclosure. Normally, when a person is late making their mortgage payment the lender will issue a Notice of Default (the timing depends; it can be as little two weeks late). The homeowner is given ninety days to bring their mortgage current. If they do not then the lender will issue a Notice of Trustee Sale. This gives the homeowner notice that a foreclosure auction will be held at a certain date. The lender must give, at least, twenty days notice of the Trustee Sale.
Filing a bankruptcy any time before the foreclosure auction takes place will stop this whole process. Filing for bankruptcy, either a Chapter 7 or a Chapter 13, will start what’s called the Automatic Stay. The Automatic Stay is a fancy term meaning that creditors must stop trying to collect from debtors. The Automatic Stay is in effect for the entire time a bankruptcy case is open.
There is an exception to the protections offered by the Automatic Stay and that occurs when a creditor asks the Court for permission to continue with their foreclosure. This is called asking for Relief from the Automatic Stay. Sometimes lenders will seek this type of relief, sometimes they do not. There is no pattern that emerges as to when they do or don’t.
Generally, a person filing a Chapter 13 bankruptcy will not have to worry about a Motion for Relief from the Automatic Stay because a Chapter 13 debtor will propose a payment plan to the Judge that provides for monthly payments to the lender. Once lenders see that the arrears are accounted for in a Chapter 13 plan they usually do not object to the plan.
Filing a Chapter 7 bankruptcy when a home is in danger of being foreclosed on serves to delay the foreclosure process. But, it does not address the underlying arrears, meaning that once the bankruptcy case is closed the lender is free to continue to with the foreclosure process.
If you think you are in danger of losing your home please contact me to discuss whether a bankruptcy could help.