Many people use chapter 13 bankruptcy to save their home from foreclosure. Only in chapter 13 bankruptcy can homeowners facing foreclosure stop the foreclosure process and repay their delinquent mortgage payments over several years. Specifically, by filing chapter 13 bankruptcy the foreclosure process automatically stops pursuant to Federal Law. Later, the homeowner proposes a chapter 13 repayment plan that calls for repayment of the delinquent mortgage payments over 3 to 5 years. Once repaid, the homeowner is no longer in default on their mortgage and foreclosure proceedings cannot resume.
The automatic stay in bankruptcy is what stops the foreclosure process. Under 11 U.S.C. § 362(a) of the Bankruptcy Code the filing of a bankruptcy petition gives rise to the automatic stay. In turn, the automatic stay requires that most collection proceedings – including foreclosure – are stayed – or stopped – once a bankruptcy petition is filed with the court. There are two important points to make with regard to the automatic stay. First, the protections offered by the automatic stay are automatic; there is no waiting period between filing the petition and the cessation of collection proceedings. If we file your bankruptcy petition at 9:00 am on Tuesday the scheduled Trustee’s sale cannot commence at 10:00 am that same day. Second, foreclosure proceedings must stop once the bankruptcy petition has been filed with the court, provided that the home has not already been sold. In other words, as long as your home has not actually been sold you can stop the foreclosure process by filing chapter 13 bankruptcy.
Curing Long-Term Debts
Chapter 13 bankruptcy allows homeowners to cure defaults on long term debts, which is a fancy way of saying that homeowners can keep their home by repaying delinquent mortgage payments over 3 to 5 years. In chapter 7 bankruptcy the lender will eventually be able to foreclose on the home if the homeowner is behind on their mortgage. Yes, the automatic stay will stop the foreclosure process for a short time, but the lender can file a motion to lift the automatic stay to pursue foreclosure, which is allowed under certain circumstances. Alternatively, the lender will continue with foreclosure after the chapter 7 bankruptcy case is closed because the lender can look to their property for repayment, even though the homeowner’s personal liability has been erased in chapter 7 bankruptcy. In contrast, chapter 13 bankruptcy can save a home from foreclosure even after the bankruptcy case has closed.
Chapter 13 bankruptcy can save a home from foreclosure over the long-term through the chapter 13 repayment plan. The homeowner’s chapter 13 repayment plan will call for repayment of delinquent mortgage payments in addition to continued payment of scheduled mortgage payments. As long as this repayment plan is feasible and conforms to the required rules for confirmation the lender must accept this 3 to 5 year repayment plan. Upon successful completion of the repayment plan the delinquent mortgage payments will have been repaid, thus bringing the homeowner out of default. Since the homeowner will no longer be in default at the end of bankruptcy the lender cannot initiate foreclosure proceedings. Hence, only chapter 13 bankruptcy can save a home from foreclosure after bankruptcy.
If you are facing foreclosure call our attorney at (916) 596-1018.