Are you facing foreclosure?  If so, you may be wondering whether filing for bankruptcy will stop your foreclosure proceeding. The short answer is yes – but there are some conditions that must be satisfied. Filing for bankruptcy is a commonly used tactic to save a home from foreclosure.  However, it should be considered a “last resort” option—and only used when all other options have failed to stop the foreclosure proceeding.

Filing for bankruptcy – and including the mortgage loan in your petition – will temporarily stop any foreclosure proceedings or other collection efforts by your lender.  The key word here is “temporarily.”  After you file for bankruptcy, a federal relief order (known as an “automatic stay”) will go into effect immediately.  This will prevent creditors, including your mortgage lender, from pursuing collection activities for as long as the automatic stay is in place.  Your home cannot be sold at a county sheriff’s sale while the automatic stay is in place.

What happens to your house after the bankruptcy filing depends on whether you filed Chapter 7 or Chapter 13 bankruptcy.  State rules for the two bankruptcy filings (Chapter 7 and Chapter 13) determine what property you get to keep under various circumstances.  For example, a Chapter 7 bankruptcy will allow you to discharge most of your secured & unsecured debts, as long as creditors have access to the collateral for which the secured loan was guaranteed.  This means that homeowners can discharge a mortgage under this filing – however, the bank will get to keep the home as satisfaction of the debt.

With a Chapter 13 bankruptcy filing, you will enter into a payment plan to get caught up on your debts.  Unfortunately, bankruptcy judges do not have the authority to lower mortgage balances or negotiate payment terms, so you will have to pay back the total amount you’ve fallen behind as well as continue making regular monthly mortgage payments.  For many borrowers, this can be very expensive.  However, if you are able to make it through the 3-5 year bankruptcy repayment plan, then you will save your home and be current on the loan.  Keep in mind that if you fall behind on making your payments (according to the bankruptcy plan), the bank will have the “automatic stay” lifted and your home will be put back into foreclosure.  Neither bankruptcy filing will stop the foreclosure entirely — it only puts the process on hold while borrowers use the federal legal system in their defense against creditors.

Before filing for bankruptcy to stop a foreclosure proceeding, it’s a good idea to consult with a bankruptcy attorney.  A bankruptcy attorney can assess your foreclosure situation, and determine whether filing for bankruptcy would be advised, and whether you should file a Chapter 7 or Chapter 13 bankruptcy proceeding.