Can Bankruptcy Save My Home From Foreclosure?

Bankruptcy can help deal with foreclosure in several ways.

The Automatic Stay [See Automatic Stay] can provide immediate temporary relief.  The Stay prohibits commencement or continuation of legal action against your real estate.  The Stay takes effect when your Bankruptcy is filed.

If the sheriff’s sale of the property has already taken place a bankruptcy may permit you a brief respite to complete the sale or redemption of the property.  You will have more options if you file a bankruptcy before the sheriff’s sale.

Chapter 13 normally offers greater flexibility in dealing with foreclosure.  It will often be the only way you can keep your home.  The Automatic Stay stops any pending sheriff’s sale.  In most cases payments in arrears are made up over time, perhaps even 36 months (or even longer in some cases – with the consent of the lender).  The debtor is helped in several ways:

1. The debtor will have time to make up back payments rather than paying them in a short period of time;
2. Interest on the arrears stops;
3. Late payment penalties stop;
4. Payments on other debts can normally be delayed while the mortgage arrears are paid;
5. In the case of many debts, especially non-priority unsecured debts, most or even all the debt will not have to be paid; and
6. In some cases it may even be possible to modify the terms of the mortgage, that is change the term, payments or interest on the mortgage or even write down the principal to the fair market value of the property.

In a Chapter 7 case the Automatic Stay will normally remain in force for about 90 days.  A creditor may ask the Bankruptcy Court to lift the stay and permit a foreclosure of your property.  Such an action would follow a motion, hearing and order.  Whether the creditor is able to lift the Stay or the Stay is dissolved in the ordinary course of the case, the mortgage holder will have to begin the foreclosure action again.  This means the notice will be started by the mortgage company’s attorney at least six weeks after the new foreclosure notice is served.  You will then have a redemption period of 180 days in which to sell or redeem the property.  By discharging some or all of your other debt, the Chapter 7 case can make it easier to come up with money to reinstate the mortgage.

In either a Chapter 7 or Chapter 13 case you may not wish to keep a home because you are not able to make the payments or because you owe much more on the mortgage than the property is worth.  You are permitted to surrender your interest in the real estate and discharge your personal obligation on the mortgage note.

If you opt to discharge your obligation on the mortgage note and surrender your interest in the real estate, you generally are left to possess the premises (live in or rent) until 180 days after the date of the sheriff’s sale.  When this period has expired, the creditor may seek possession of the premises by filing an unlawful detainer action if you refuse to leave voluntarily.