Personal Bankruptcy - Stop Foreclosure

The filing of a petition under Chapter 7 or Chapter 13 “automatically stays” most actions against the debtor or the debtor’s property. The automatic stay provision is known as §362 of the United States Bankruptcy Code. This stay arises by operation of law and requires no judicial action.

The automatic stay stops a foreclosure proceeding (exceptions apply if there have been repeat bankruptcy filings). The foreclosure proceeding can be stayed right up to the time of the sale but it is prudent to file for protection under Chapter 7 or 13 well before the Trustee sale date. Once the foreclosure is stayed then the debtor can establish a plan for coming current on the mortgage arrears.

Anyone considering the filing of a bankruptcy to stop a foreclosure should seek legal advice to determine: (1) whether it is advisable to stop the foreclosure; and, (2) if the debtor can benefit from filing bankruptcy whether Chapter 7 or Chapter 13 would be the appropriate chapter to file under.

Chapter 7 is used only rarely for staying a foreclosure proceeding. It is recommended that an individual seek the advice of an attorney before deciding which chapter to file under.

Most debtors file for protection under Chapter 13 of the bankruptcy code. Under a Chapter 13 Plan a debtor can arrange to come current on mortgage arrears over 60 months. Often the mortgage arrears are repaid without interest. Also, if a debtor files before a Notice of Default is issued by the lender, then the debtor can avoid being charged additional foreclosure fees.

The debtor must prove that the lender is “adequately protected”—this means the debtor must be able to show that the debtor can make the regular monthly mortgage payments plus an installment payment toward the mortgage arrears. The debtor must also maintain insurance on the premises and must provide for repayment of any real estate tax arrears. If the lender is not adequately protected then the lender can obtain relief from the automatic stay to proceed with the foreclosure.

The above is just a brief review of how Chapter 13 stays a foreclosure proceeding. It is strongly recommended that an individual seek additional advice from an attorney before attempting to stop a foreclosure by filing a bankruptcy petition.

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