Bankruptcy can provide relief from delinquent mortgage payments and foreclosure. When you file bankruptcy, you are granted an automatic stay. This prevents your mortgage lender from collecting payments or attempting to foreclose on your home. If you are filing for Chapter 7 bankruptcy, a trustee will be appointed to administer your assets. This may provide the opportunity to sell or surrender the property that may be foreclosed, or raise funds to make mortgage payments. The stay also gives time to possibly renegotiate a payment plan with your lender. Keep in mind–this stay ends when your bankruptcy case is closed, and if no deal is worked out, the lender may get leave from the court to move against the property. It may also be possible for you to enter into an agreement with your lender to modify the terms of the mortgage.
There are exceptions to the automatic stay: If you have previously filed for bankruptcy and your case was dismissed within the past year, getting the stay requires filing a motion with the court. If you have previously filed for bankruptcy and had two or more cases dismissed within the previous year, the automatic stay does not go into effect without court approval.
Filing under Chapter 13 is usually the better option to stop foreclosure. It sets up a plan for you to make payments to your creditors, on a biweekly or monthly basis, over the lifetime of your plan. You will be able to make payments over a 3 to 5-year period. This will allow you to catch up mortgage payments over the course of this plan. The payments are based on income and expenses and are tailored to your individual needs and situation. A Chapter 13 filing stops the lender from foreclosure, unless you fail to make payments after filing.
In general, if you are facing mortgage payments you cannot make, a Chapter 13 bankruptcy can give you extra time to make repayments. With a Chapter 7, it is sometimes possible to work out an arrangement with the lender and negotiate terms. Either variety offers flexibility and an alternative to foreclosure.