Both Chapter 7 and Chapter 13 can help you save your home. Which one is better for YOU?
You have almost for sure heard that the filing of a bankruptcy stops a foreclosure. You may have also heard that Chapter 13—the repayment version of bankruptcy—can be a good tool for saving your home in the long run. Both of these are true, but are only the beginning of the story. This blog today tells you more about stopping a foreclosure. My next blog will get into longer term solutions.
The “automatic stay” is the part of the federal bankruptcy law which immediately blocks a foreclosure from happening. The very act of filing your bankruptcy case “operates as a stay,” as a court order stopping “any act to… enforce [any lien] against any property of the debtor… .”
But what if your bankruptcy case is filed and the mortgage lender or its agent can’t be reached in time so that the foreclosure sale still occurs? Or if there’s some miscommunication between the lender and its agent or attorney, with the same result? Or if the lender just goes ahead and forecloses anyway?
As long as your bankruptcy is in fact filed at the bankruptcy court BEFORE the foreclosure event, then that foreclosure is not legally valid, whether it occurred by mistake or intentionally. (This filing “at the bankruptcy court” is usually actually done electronically from my office, with a date and time-stamped record proving when the court filing took place.)
IF a foreclosure happens by mistake after the filing of your bankruptcy, lenders are usually very cooperative in legally undoing the foreclosure and its documentation. If your lender would fail to undo such a foreclosure after becoming aware of your bankruptcy filing, it would be in ongoing violation of the automatic stay, exposing itself to significant financial penalties. That would be rare.
Does it matter whether your bankruptcy case is a Chapter 7 or Chapter 13 one for purposes of the automatic stay?
No, the automatic stay is the same under both Chapters, and would have the same immediate effect.
On the other hand, how long the protection of the automatic stay lasts can definitely depend on which Chapter you file. That’s because even though you get the same automatic stay, the other tools each Chapter gives you for protecting your home are very different. So your mortgage lender may very well react quite differently depending on the Chapter you file, as well as on what you propose to do about your home and your mortgage within that Chapter. I’ll write about those options in my next blog.