The instant you file for bankruptcy, all foreclosure proceedings must stop due to the automatic stay. The stay acts as an injunction—or bar—against any attempts by creditors to collect debts or enforce liens.
Chapter 7 bankruptcy. Although you cannot catch up on past-due mortgage payments in a Chapter 7 bankruptcy, it can help you delay a foreclosure. Generally, filing for Chapter 7 bankruptcy isn't a good idea if you don't have much debt or no debt that would be discharged and your only reason to file is to get some additional time in your home. You can't get another Chapter 7 discharge for eight years, so why choose this option just to get a little extra time before eventually losing the home to a foreclosure anyway? Also, courts frown on filers using bankruptcy for tactical purposes. But if you have serious debt issues and you can eliminate those debts through a Chapter 7 bankruptcy, it might make sense to file and get some additional time in your home as well.
Chapter 13 bankruptcy. In Chapter 13 bankruptcy you can catch up on back due mortgage payments through your repayment plan, which lasts from three to five years. If you stay current on your mortgage and comply with the rest of the Chapter 13 requirements, you can stave off foreclosure.
And while you are in bankruptcy, some states have special foreclosure mediation or loss mitigation programs that might help you come up with another solution.
Of course, bankruptcy is not for everyone. There are the obvious psychological barriers; no one likes to admit that bankruptcy is really necessary. And if you’re concerned about rebuilding your credit as soon as possible, bankruptcy might best be avoided entirely.
Timing is key. If you visit a lawyer for the first time just days before the foreclosure sale is scheduled, there might not be much the lawyer can do other than help you file a bankruptcy case to stop the sale. If you visit a lawyer as soon as you learn about an impending foreclosure, you have a much better chance of working something out to stop the foreclosure—like a modification—before a bankruptcy case is necessary.