As a debtor filing for bankruptcy, you are entitled by law to a court-ordered rule of protection known as the automatic stay. This applies in a Chapter 7 and in a Chapter 13 filing. There are several creditor activities that the automatic stay protects and/or prohibits. One of the prohibited acts involves any creditor continuing a foreclosure sale that has begun prior to the bankruptcy filing, or starting a foreclosure proceeding during the length of the bankruptcy case. If you want to file for bankruptcy and keep your home, there are certain requirements that must be met. A qualified attorney will look at your situation in detail to determine whether you meet the requirements.
See Chapter 7 vs Chapter 13
In a Chapter 7 filing, a debtor can buy some time for him/herself with the automatic stay by preventing immediate foreclosure on a debt secured by real estate. If there is a scheduled foreclosure sale, this sale gets cancelled. It is very important to note: the debt that is allowed to be wiped out in a Chapter 7 does not include missed mortgage payments. Once the debtor in a Chapter 7 receives a discharge at the resolution of his/her case, then the automatic stay is lifted. At this time, the creditor can resume or begin foreclosure proceedings against a debtor who has missed mortgage payments prior to filing the Chapter 7. The creditor can also seek relief from the automatic stay prior to your Chapter 7 discharge. Chapter 7 bankruptcy does not allow a debtor to “catch up” overdue mortgage payments within his/her case. Additionally, there is no requirement for the bankruptcy court to work out any repayment plan with the lender. Lenders are not required to modify a mortgage if you file a Chapter 7.
One important thing to consider regarding Chapter 7 is that money may be freed up for you once all allowable debts are consolidated into a Chapter 7 plan. This can, in some circumstances, allow a debtor to pay the lender all of the missed payments owed. Then the debtor must continue to keep the mortgage current and pay the monthly mortgage, both during the Chapter 7 proceeding and after the discharge.
Usually, the better option if you want to keep your home is to file a Chapter 13 bankruptcy. This is a reorganization of your debts, which is a 3-5 year repayment plan on debt owed. Missed mortgage payments do qualify to be part of this repayment plan. This means that you can “catch up” on all overdue mortgage payments, and also not have to pay them all at once. Through a Chapter 13 plan, monthly payments are made to a Chapter 13 Trustee who oversees the case. The debtor must continue to make all ongoing mortgage payments during the entirety of the Chapter 13 case. At the end of the Chapter 13 case (the 3-5 year period), the debtor receives a discharge on all debts that were part of this plan. The debtor keeps his/her home and continues to pay the monthly mortgage payment.