Chapter 13 Bankruptcy Laws to Stop Foreclosure

Filing for Chapter 13 Bankruptcy automatically stops collector’s efforts from collecting a debt, including foreclosure procedures. The legal term for this process is the “Automatic Stay,” named as such because it immediately notifies all creditors to cease efforts to collect a debt once the debtor has filed for bankruptcy.

 The Automatic Stay

The Automatic Stay is particularly useful in Chapter 13 bankruptcy because the creditor cannot have the stay lifted as he can in a Chapter 7 bankruptcy. While both actions can temporarily stop a foreclosure from proceeding, the Chapter 7 filer risks having the the automatic stay lifted if the creditor files a motion to do so. Unless the debtor becomes current on the mortgage before this action, the court will grant the motion and the foreclosure will proceed. However, in Chapter 13 bankruptcy, foreclosure proceedings can be permanently stopped, giving the debtor an opportunity to make arrangements to pay the back payments over a three- or five-year period. The Automatic Stay can also be cancelled if a debtor has filed for bankruptcy within the last two years. The creditor would petition the court to have the stay lifted, and the court would grant the motion.

How Long the Stay Lasts

The Automatic Stay will remain in effect until the court approves the Chapter 13 bankruptcy repayment plan or until the case is dismissed. If the court approves the Chapter 13 bankruptcy, the debtor is required to submit a repayment plan to pay non-dischargeable debts, including debt on property owned. This repayment plan is effectively a new agreement between the debtor and his creditors, sanctioned by the court.

The Automatic Stay will also end if the court does not approve the Chapter 13 filing, and the case is dismissed. In this case, the debtor may renew foreclosure proceedings.

Filing Bankruptcy in Bad Faith

Because filing for bankruptcy can be an easy way to delay the foreclosure process with the Automatic Stay, some debtors have found it a useful tool, even if they know they will not qualify for either Chapter 7 or Chapter 13. This is known as filing in bad faith. Once the court determines a debtor is a bad-faith filer, the case can be prosecuted for perjury.

If you are considering bankruptcy, contact a qualified attorney in your state. An attorney specializing in personal bankruptcy can assist in choosing the best option for your situation.