Many people don't realize that when they file bankruptcy the automatic stay takes effect immediately and this prohibits the creditors from harassing the debtor any further. The automatic stay is a court order that is actually similar to a restraining order in that it prevents the creditors from all contact with the debtor and stops all collection activity. The automatic stay will stay in effect for the duration of the bankruptcy proceeding. This typically means that it lasts for the 4-6 months that it takes to receive a discharge in a Chapter 7 bankruptcy case, or for 3-5 years depending on the repayment schedule for a Chapter 13 bankruptcy. This is especially important for individuals filing bankruptcy that have a home that is in foreclosure.
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However, the mortgage lender may file a motion for relief of stay with the court to continue with foreclosure proceedings since the home is considered a secured debt. The court may grant a motion for relief of stay in a Chapter 7 bankruptcy if the individual is delinquent on their mortgage payments and there is no equity in the property for the creditors, then continue with the foreclosure proceedings. A Chapter 7 bankruptcy is not typically designed to stop a foreclosure for a substantial period of time to allow debtors the ability to get caught up on their payments. There are some instances where this has happened and the debtor was able to have the automatic stay work for them in their Chapter 7 filing. First of all the debtor was not too terribly far behind in payments and by not paying all of their other unsecured debts they were able to come up with the back payments owed on the property. These unsecured debts were then discharged in the Chapter 7 bankruptcy allowing them to reaffirm the mortgage debt and keep their home since they now could afford it with all of the other debt wiped out.
A Chapter 13 bankruptcy was designed for this situation. The automatic stay protects the debtor under the law and the foreclosure is suspended. The 3-5 year repayment plan that the debtor works out with their bankruptcy attorney will be submitted to the court for approval. If approved the debtor will pay back their debts with the secured debts getting first priority and the unsecured debts getting whatever is left over at the end of the payment schedule. A Chapter 13 thus enables the debtor to get caught up on all back mortgage payments allowing them to keep their home without fear of the automatic stay being lifted and the foreclosure resuming. Bankruptcy and it's laws can be complicated since everyone's personal financial situation is unique. Bankruptcy laws also vary from state to state. Finding and speaking with an experienced bankruptcy attorney is really the key to a successful bankruptcy filing. After all the future of your financial success is at stake and should not be taken on without being completely informed of all options.
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