Filing for Chapter 13 is a powerful tool for individuals to stop foreclosure and save their home. That is because filing for bankruptcy provides an automatic stay that halts foreclosure during the bankruptcy case, unless the court grants relief from the automatic stay for the creditor to continue with foreclosure. However, the creditor needs to have a reason to request such relief. The automatic stay goes into effect the moment the chapter 13 case is filed electronically with the court.
Furthermore, filing for chapter 13 allows a debtor to propose a plan that cures a mortgage arrearage. Therefore, chapter 13 is an option to consider for those who have fallen behind on mortgage payments and may be facing foreclosure. The most common way a chapter 13 plan proposes to pay the debt to the mortgage lender is a cure and maintain provision. The debtor proposes to cure the past due amount (missed payments, late fees, etc.) over the course of 3-5 years or the life of the plan and maintain making the ongoing mortgage payments as they become due.
Filing for bankruptcy may not be the only option for a homeowner that has fallen behind on mortgage payments. Other options include: walking away from the house, selling the house, catching up on the mortgage, or modifying the mortgage. Many factors will influence which strategy is best for any particular homeowner facing mortgage default. Contact an experienced bankruptcy attorney to determine what strategy is best.