A foreclosure is stopped in its tracks by bankruptcy. The petition initiates the automatic stay, which halts all collection efforts by creditors, including foreclosing on properties. However, the length of the stay varies across bankruptcy chapters.
In Chapter 7, the stay only applies for as long as the trustee does not relinquish the property by declaring it exempt, worthless to the estate, or both, or until the matter is resolved. If there is a chance that the secured claim may increase during the bankruptcy to the point that it exceeds the value of the security, the secured creditor might ask for relief from the stay to carry out the foreclosure.
Unless a specific law permits the court to discharge the claim, liens survive bankruptcy. Since the bankruptcy does not remove the creditor’s lien, Chapter 7 just prevents the foreclosure from happening temporarily.
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In contrast, the stay in Chapter 13 is in effect for the duration of the lawsuit. With the help of Chapter 13, debtors can make up missed mortgage payments by paying the arrears over a period of three to five years.
The house can be saved if you are able to make the normal monthly payment and contribute enough funds to a Chapter 13 plan to bring the mortgage current by the plan’s end. While a loan modification is being thought about, Chapter 13 may also prevent the residence from going into foreclosure.
What will happen next?
Thus, it is evident that bankruptcy might halt the foreclosure in the near term. Your objectives and capacity to resolve the underlying issue will determine whether it is a long-term solution. If it makes sense to keep the house, think about that as well.