Bankruptcy, Chapter 13 Bankruptcy especially, is routinely used to save a house from foreclosure. It boils down to a two step process: (1) stay the foreclosure with the filing of the bankruptcy case and (2) catch up the past-due amount over 3 to 5 years.
On filing a bankruptcy case, a injunction against collection activity is automatically entered, preventing creditors from taking the debtor's property. Creditors may seek relief from the stay to terminate the injunction.
Frequently Asked Questions
Our frequently asked questions also address Automatic Stay:
A motion for relief from the automatic stay is a common motion brought by a creditor, who wishes to take action that would otherwise be barred by the bankruptcy automatic stay. Most frequently, a motion for relief seeks court permission to foreclose on real estate or repossess a car or other vehicle. A motion might also be brought to in order to continue a legal proceeding outside of bankruptcy.
The answer to this question is a clear "sort of". While the filing of a chapter 7 bankruptcy will stop a foreclosure sale, it will seldom prevent the eventual foreclosure.
What happens to my mortgage in chapter 7 bankruptcy?
On the powerful protections in a bankruptcy case is the automatic stay. In a typical voluntary bankruptcy, this stay is completely automatic, and goes into effect upon filing the bankruptcy petition without any action from the court. Among the activities stayed is communication from a creditor seeking payment of the debt.
One powerful benefit of the bankruptcy process is the automatic stay, which prevents a wide range of collection activity. The automatic stay allows the bankruptcy case to run its course without creditors and other parties unravelling its effectiveness with out-of-bankruptcy collection activities. Willful violations of the stay can result in actual damages, attorneys' fees, and occasionally punitive damages.
Generally, one can file bankruptcy again after a chapter 13 case has been dismissed. Re-filing is relatively common. Sometimes there are limits on re-filing at all, but more often the limits affects the available of the bankruptcy automatic stay.
The co-debtor stay is a special feature of chapter 13 bankruptcy, provided under 11 U.S.C. §1301. Bankruptcy cases carry with them a bankruptcy automatic stay which goes into effect on filing of a bankruptcy case to stop essentially all collections activity. The co-debtor stay is a relative of the automatic stay, but instead of protecting the debtor, it protects co-signers or co-obligors in particular ways.