I just received a foreclosure notice from the bank. Can I save my home if I file for chapter 13 bankruptcy?
If you received a foreclosure notice from your bank, you may still be
able to save your home by filing for Chapter 13 bankruptcy. This is
because a Chapter 13 can stop foreclosure and allow you to cure your
mortgage default before the lender sells your home. Read on to learn
more about how Chapter 13 can help you save your home if your lender has
begun the foreclosure process.
(Learn more about how Chapter 13 treats your home, mortgage, and second mortgage in Chapter 13.)
Just because you received a foreclosure notice doesn’t mean the bank
can immediately sell your house. Each state has different rules that set
forth foreclosure procedures that a lender must follow. Certain states
require lenders to initiate a lawsuit in state court to foreclose on
your house (known as judicial foreclosure) while other states allow
foreclosure without court involvement (nonjudicial foreclosure).
However, in either case, your lender is required to give you plenty
of notice that you are in default and that it wants to foreclose on your
home. Depending on your state, the lender must usually wait a certain
amount of time or obtain a judgment before it can set a foreclosure sale
date. Again, you will typically receive notice of the sale date when it
is set. As a result, if you receive a foreclosure notice from your
bank, review it carefully to see how much time you have before your home
(To learn more about foreclosure procedures and how foreclosure works, see the articles in Nolo's Foreclosure section.)
When you file for Chapter 13 bankruptcy, your lender is prohibited
from conducting the foreclosure sale. This is because the automatic stay
prohibits most creditors, including your mortgage lender, from
continuing any collection efforts without further court permission.
Basically, this means you still have a chance to save your home as long
as it has not already been sold at a foreclosure sale. (Learn how the automatic stay works in bankruptcy.)
In addition to stopping the foreclosure sale, Chapter 13 bankruptcy
also gives you the opportunity to cure your mortgage default and save
your home. While you are protected by the automatic stay, you can catch
up on your missed mortgage payments through your Chapter 13 repayment
plan. Your plan can last as long as five years so it provides an
affordable way to cure your default over a long period of time.
Here is how it works. You catch up on your pre-bankruptcy mortgage
arrears (amounts you are behind on) by making monthly plan payments to a
bankruptcy trustee. In turn, the trustee pays your lender the monthly
catch up payment specified in your plan. While you cure your default,
you also continue to make your regular mortgage payments during
bankruptcy. As a result, once you complete all payments under the plan,
you are no longer in default and can keep your home.
by: Baran Bulkat, Attorney