How Bankruptcy Can Save a Home from Foreclosure

Bankruptcy may be able to stop your home from foreclosure in a variety of ways.  Under the present law, by filing either a Chapter 7 or a Chapter 13 bankruptcy it may temporarily halt the foreclosure process.  Most people who want to save their home will file for a Chapter 13 in order to obtain adequate time in order to bring the mortgage current.    When you file either Chapter 13 or Chapter 7, the court will automatically issue an “Order for Relief”, also known as an automatic stay.  This directs your creditors to cease their collection activities immediately.  If your home is scheduled for a foreclosure sale, it will legally be postponed while the bankruptcy proceeding is pending.  In Chapter 7, the automatic stay will prevent the creditor from initiating or continuing a foreclosure proceeding so long as:

1. The stay is not lifted by the grant of relief from stay
2. The property is property of the bankruptcy estate
3. The debtor/borrower has not received a discharge

When any of the above happens, the creditor is free to enforce rights it had prior to bankruptcy.  Chapter 7 only buys time, but is not a solution as to the fault, unless you can redeem the collateral.

Exceptions to the Automatic Stay in Bankruptcy

There are two different exceptions to the automatic stay rule in bankruptcy.  They are:

Motion to Lift the Stay

This motion is usually filed against you if you have fallen behind on your house payments or Chapter 13 payments.  With the assistance of your attorney, you can file a response and request a hearing before the bankruptcy court judge.  The judge will usually deny the motion to life the stay if you can catch up on the missed payments. 

Foreclosure Notice Already Filed

Before selling a home, a lender has to give the owner at least three months’ notice.  If you receive a three-month notice of default, and then file for bankruptcy after two months have passed, the three-month period would elapse after you had been in bankruptcy for only one month.  The lender could then file a motion to lift the stay and request the court’s permission to schedule a foreclosure sale.

Always Get Legal Advice from a Bankruptcy Attorney

If you choose to file bankruptcy in order to save your home from foreclosure, it is best to seek out legal assistance.  An attorney who specializes in bankruptcy law will be able to review your case and make the best recommendations for your future.