Filing bankruptcy is never anyone’s first option for avoiding foreclosure, but with an impending Trustee’s sale chapter 13 bankruptcy may be the most effective way to stop the sale and save the home. The filing of a chapter 13 bankruptcy petition creates an automatic stay against collection actions including the execution of a Trustee’s sale. For many homeowners who receive a Notice of Trustee’s Sale chapter 13 bankruptcy may be the only way to stop foreclosure.
Under Section 362 of the Bankruptcy Code the filing of a bankruptcy petition creates an automatic stay against collection actions including the sale of a home in the course of non-judicial foreclosure. The creation of this stay against collection action is automatic upon filing; as soon as a bankruptcy petition is electronically filed collection actions identified in 11 U.S.C. 362(a) are prohibited. With that said, bankruptcy petitioners are well advised to send creditors notice of the bankruptcy filing before scheduled collection events such as the sale of a home. Once creditors receive notice of the bankruptcy filing any actions taken in violation of the automatic stay may be deemed willful and subject the creditor to liability.
Keeping The Home
Before the scheduled Trustee’s sale the homeowner has a period of time in which they may reinstate the loan by paying all delinquent payments, charges, and Trustee’s fees; however, few homeowners facing foreclosure have the funds necessary to reinstate the loan in this fashion.
In chapter 13 bankruptcy the homeowner can repay delinquent mortgage payments over 3 to 5 years. After repaying delinquent mortgage payments over several years the homeowner will no longer be in default on the loan and thereby no longer at risk of foreclosure.