Can Chapter 13 Bankruptcy Stop Foreclosure on your Home?

Many people fall behind on paying off their mortgage. Some mortgage companies and lenders might be willing to work out deals with property owners. Some of these deals include loan modifications, short sales, amongst others. However, many lenders do not offer these options and are likely to start the foreclosure process, as indicated in the loan contract. Can filing for Chapter 13 bankruptcy stop this process?

According to bankruptcy attorney Walter Benenati, filing for Chapter 13 bankruptcy can potentially offer both short-term and long-term help for homeowners facing foreclosure of their properties. Note that this is a complex process with many requirements & restrictions, as well as short-term negative impact on one’s credit profile. Anyone considering this path must consult with an expert to figure out if there are better debt handling options for your particular situation. Filing for bankruptcy should be a last resort — only used if you have no other way of repaying your mortgage or stopping the foreclosure process.

Keeping your home with Chapter 13 bankruptcy

Often, the word ‘bankruptcy’ brings up visions of lost assets and a bold “SOLD” plastered on your home. However, the provisions of Chapter 13 bankruptcy protects homeowners from such actions. This type of bankruptcy is commonly known as a ‘wage earner’s plan,’ and it is an ideal option for individuals who find themselves under heavy debt but who also have a reliable source of income.

Under Chapter 7 bankruptcy, eligible assets can be sold off to repay your debts. However, Chapter 13 bankruptcy allows you (the debtor) to suggest a better debt repayment plan (about 3-5 years) depending on your income. If you follow this plan and meet all the set conditions, there is a chance you will get a discharge of specific debts included in that plan. Thus, your home can be saved from foreclosure.

Note that the debt repayment plan can incorporate all missed mortgage repayments, which allows you to become current with the mortgage company or lender. This plan will not release you from your obligation to pay. You are still required to make mortgage payments, though they may be less than the original agreement per your Chapter 13 repayment plan.

The automatic stay

In addition to your ability to get your debt discharged through filing for bankruptcy under Chapter 13, the action of filing automatically pushes the pause button on all credit collection processes, including foreclosure. This is known as the automatic stay provision. It protects debtors and offers them a break from persistent calls and collection efforts from creditors. Mortgage lenders aren’t an exception.

Keep in mind that the foreclosure process will not stop forever. But the automatic stay will give you a small breathing room to reorganize your finances. Timing, in this case, is essential. The automatic stay might not reverse a completed foreclosure sale. It also cannot stop the results of missing new mortgage repayments during the bankruptcy period. If you miss those payments, your lender can petition to proceed with the foreclosure. To be on the safe side, work with an expert who understands the bankruptcy law and process.


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