One of the leading causes of filing for bankruptcy is the inability to repay a mortgage, or falling behind on a mortgage and not being able to catch it back up. Filing a Chapter 13 bankruptcy imposes the Automatic Stay (the “Stay”) against all creditors, including a mortgage company who is instituting a foreclosure proceeding. In the context of a foreclosure, the Stay is effective until the bankruptcy court permits the lender to continue the foreclosure or until the bankruptcy case is either closed (completed) or dismissed.
If your property is in foreclosure, it is in your best interest to seek the advice of a bankruptcy attorney immediately. Even if a foreclosure sale has been completed on the property you want to keep, filing a Chapter 13 bankruptcy within 10 days of the completion of the sale (called the 10-day redemption period, or Upset Bid Period) may, under certain circumstances, stop, postpone, or even reverse the sale. Chapter 13 bankruptcy is a vehicle that can allow you to pay the past due amount to your mortgage (the arrears) over a period of up to five years. Once you’re caught up, there is no further reason for foreclosure, assuming no other defaults exist. However, if you have decided to walk away from the mortgaged property – perhaps the mortgage is more than the property is worth – a bankruptcy can prevent the lender from continuing to pursue collection on the remaining balance (called a deficiency). Chapter 13 bankruptcy can also return the property to the lender via an orderly release.
If you are in mortgage distress, it is strongly recommended that you see the advice of a knowledgeable bankruptcy attorney now.