Facing Foreclosure? It’s not too Late to Save Your Home
Facing foreclosure can be a stressful experience, especially while dealing with a separation. But, even if facing foreclosure, there’s still hope. Even if the foreclosure sale is just days away, filing for Chapter 13 bankruptcy could be your lifeline to save your home thanks to the automatic stay.
Updated on February 12, 2025.
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Key Points:
- Filing for bankruptcy (Chapter 7 or 13) triggers the automatic stay, stopping foreclosure proceedings.
- Chapter 7 bankruptcy will not save your home from foreclosure but will delay the foreclosure process.
- Chapter 13 will allow you to catch up on missed mortgage payments with a court-approved repayment plan.
- Chapter 13 is complex and should be filed only with a bankruptcy lawyer.
Reader’s Question – Foreclosure, Bankruptcy and the Automatic Stay
Today’s question is from a reader, Martina, who lives in California. She’s trying to figure out if it’s too late to save her home from foreclosure.
Martina is going through a separation, and because her spouse moved out of the home, he stopped contributing to the household expenses. Throughout this time, Martina has been trying to negotiate for lower payments on her mortgage with the lender. It has been a slow process, to say the least.
The problem is that foreclosure proceedings were started while negotiating with the mortgage lender. On the one hand, the mortgage lender’s loss mitigation or modification department tells Martina everything is okay. Yet, the department handling mortgage defaults is continuing to move forward with foreclosure. A classic example of one hand doesn’t know what the other is doing.
However, Martina’s issue was that the foreclosure sale date was scheduled in two days. So Martina was trying to determine if filing for Chapter 13 bankruptcy was too late.
The Automatic Stay in Bankruptcy
The automatic stay starts immediately when bankruptcy is filed, whether it’s a Chapter 7 or Chapter 13 bankruptcy. However, if you need to catch up on secured debt payments like a mortgage like Martina’s, Chapter 7 bankruptcy will not save your home from foreclosure. It will delay the foreclosure, but ultimately, that is not the process to keep your home.
Chapter 13 Bankruptcy
To catch up on payments with secure debts, like car payments or a mortgage, it is required that Chapter 13 bankruptcy is filed. The way Chapter 13 works can be summarized as follows: a payment plan on the arrears is paid over three to five years.
In actuality, Chapter 13 is highly complex procedurally, and filing Chapter 13 bankruptcy without a lawyer is not recommended. Less than 5% of Chapter 13 bankruptcy cases filed without a lawyer are completed successfully.
Attorney’s Fees in a Chapter 7 Bankruptcy Versus a Chapter 13 Bankruptcy
The average attorney fees on a Chapter 7 bankruptcy are between $1,500 and $1,800. For a Chapter 13 bankruptcy, attorney fees can double or triple that amount.
With a Chapter 7 bankruptcy, attorney fees must be paid in full before the bankruptcy petition is filed. However, with Chapter 13, most lawyers will file the bankruptcy petition with a deposit, and the balance of attorney fees will be paid through the plan.
Is There a Time Frame When a Chapter 13 Bankruptcy Should be Filed?
In this case, Martina was depending on the word of the mortgage modification department. However, she could have filed Chapter 13 bankruptcy at any point. This includes a day or two before the foreclosure, even the day of the foreclosure.
For example, many times over the last two decades, I have filed a bankruptcy petition first thing in the morning to stop the sale date on a foreclosure.
What is the Process Once Chapter 13 Bankruptcy is Filed
Because bankruptcy court is federal court, and the foreclosure is in state court, the state court will not know about the bankruptcy filing. So, more than just filing for bankruptcy is required.
Once the bankruptcy petition is filed and a case number assigned, a Suggestion of Bankruptcy should be filed in the state court or foreclosure court. The Suggestion of Bankruptcy can be obtained online when the bankruptcy petition is filed or through the bankruptcy clerk’s office.
Once a Suggestion of Bankruptcy has been filed in state court, all parties should be notified immediately. If the filing was done electronically, the bank’s attorney of record will be notified via e-mail and the court’s e-file system.
The Foreclosure Judge– Provide Notice of the Automatic Stay
The judge’s office should also have notice of the bankruptcy filing so that the foreclosure sale is canceled. Depending on the district, larger districts sometimes have a foreclosure division where they can be notified directly. Other times, the judge’s office has to be notified directly. So, always check your local rules and practices.
How Much Time Does a Lawyer Need to File Chapter 13 Bankruptcy?
Every bankruptcy lawyer has been in a position where they need more time to file a completed bankruptcy petition. The way around the lack of time issue is for lawyers to file a bare-bones petition. A bare-bones petition has limited information, but it’s filed to have the automatic stay begin.
The automatic stay will stop the foreclosure once the bare-bones petition is filed. Bankruptcy attorneys then amend the petition to include all the relevant information, such as income, expenses, and debts.
I hope this blog post helps you understand the process of stopping foreclosure with Chapter 13 bankruptcy, even if you are short on time.
As always, if you have a question you wish to post in the Reader’s Question Forum, send an e-mail to Alex@ bankruptcy.blog.
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Disclaimer: Bankruptcy.blog is for informational purposes only and does not constitute legal advice. Please consult with a qualified bankruptcy attorney to discuss your specific situation.
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