How does Chapter 13 prevent foreclosures?
As long as a court has not completed foreclosure proceedings, filing for Chapter 13 bankruptcy triggers an automatic stay that provides tremendous protections for a debtor. One of those protections includes blocking your creditors from going forward with foreclosure or any other actions to collect a debt.
A Chapter 13 case is called "repayment" bankruptcy because the debtor proposes a repayment plan that includes money owed on things like past mortgage payments and penalties. In most Chapter 13 cases, the repayment plan proposes paying off amounts owed to keep homes or vehicles from being reposessed or foreclosed. Under the repayment plan, usually a 5-year period, the rest of a debtor’s discretionary income left over after the end of the month is divided among the unsecured debtors. If the bankruptcy court approves the plan, the debtor makes all the payments in the plan for the 5 years. The automatic stay protection remains in place as long as the debtor faithfully makes the payments proposed in the plan and accepted by the bankruptcy court.
If your home is presently in foreclosure, a Chapter 13 bankruptcy filing will stop the foreclosure any time prior to the sale, and allow you to repay your mortgage arrears through your Chapter 13. You will still be obligated to make all future mortgage payments directly to the mortgage company, but they may not foreclose to collect any outstanding mortgage payments.
