Can Chapter 13 bankruptcy help after a foreclosure notice?

Question

I’ve received a foreclosure notice from the bank and I’m worried that I’ll lose my house. Can I save my home if I file for Chapter 13 bankruptcy?

Answer

If you received a foreclosure notice from your bank, you might still be able to save your home by filing for Chapter 13 bankruptcy—as long as you can meet the requirements for a confirmable repayment plan. Chapter 13 can stop foreclosure and allow you time to cure your mortgage default. Read on to learn more about how Chapter 13 can help you save your home if your lender has started the foreclosure process.

(Learn more about how Chapter 13 treats your home and mortgage in Chapter 13.)

Your Lender Must Follow the Foreclosure Rules of Your State

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 file a lawsuit in state court to foreclose on your house in a procedure known as judicial foreclosure. Others allow a lender to avoid the courts using a streamlined process known as nonjudicial foreclosure. (Learn more by reading The Difference Between a Judicial and Nonjudicial Foreclosure.)

In either case, your lender is required to give you notice of the foreclosure before selling the home. The amount of time the lender must wait before the sale varies by state and can be as short as a few weeks. If you receive a foreclosure notice from your bank, review it carefully to see how much time you have before the lender auctions your home. You’ll likely want to start taking action as soon as possible.

Filing for Chapter 13 Stops the Foreclosure Sale

When you file for Chapter 13 bankruptcy, an order called the automatic stay stops your lender from conducting the foreclosure sale. The automatic stay prohibits most creditors, including your mortgage lender, from continuing any collection efforts without first receiving further court permission. You’ll have a chance to save your home as long as it hasn’t been sold at a foreclosure sale.

(Find out how a lender can get permission to continue foreclosing in When a Creditor Tries to Lift (Remove) the Automatic Stay.)

You Can Catch Up on Missed Mortgage Payments in Chapter 13 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. Once the automatic stay is in place, you can catch up on your missed mortgage payments through your Chapter 13 repayment plan. Your plan can last as long as five years, thereby providing an affordable way to cure your default over a long period.

Here’s the process.

You’ll catch up your arrearages by making monthly plan payments to a bankruptcy trustee. In turn, the trustee will forward the monthly catch up payment specified in your plan to your lender. While you cure your default, you’ll also continue to make your regular mortgage payments. Once you complete all payments under the plan, you’ll no longer be in default and can keep your home.

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