Can Chapter 13 Stop Foreclosure?

This article answers the question, can chapter 13 stop foreclosure and how homeowners may keep their homes as a result.

Filing for reorganization, as it is commonly referred to, under chapter 13 bankruptcies can stop foreclosure. The process may be stopped permanently, or it might only be stalled temporarily. The amount of time that can be “bought” with a chapter 13 filing depends on which stage of the foreclosure process the home is in.

Can Chapter 13 Stop Foreclosure?

Because chapter 13 can stop foreclosure, many people that file are doing it for the sole purpose of maintaining ownership of their homes, despite having fallen behind in payments. If the homeowner has not been given formal notice of foreclosure but has been unable to negotiate with the lender for a lower interest rate or other help in lowering the payment, then the answer to, can chapter 13 bankruptcy prevent foreclosure is yes. Once the petition for chapter 13 is filed, the lender is not able to take action against the homeowner for delinquent payments by sending notification of intent to foreclose, the “stay” period established by the court for the bankruptcy process and hearing. This makes the answer to, ‘can chapter 13 stop foreclosure’ simple.

Within two weeks of filing the petition, you, as the homeowner, must submit a plan for repayment of the full amount of the missed payments. Most chapter 13 repayment plan terms are for three years; during this period, current payments must be maintained, and the back payments must be made up over the course of the three year repayment plan. If the court deems that your income sufficiently allows you to keep the payments current and pay the full amount of the missed payments, then your lender must accept the terms. So, can chapter 13 stop foreclosure? In this case yes and permanently if you repay the missed payments and keep the loan current throughout the bankruptcy period.

If the foreclosure process has already begun, you can still file for chapter 13 bankruptcy, even as late as the day the home is scheduled to be auctioned. However, you may not have as long of a grace period as someone whose home had not officially entered foreclosure status. Your lender may petition the court to have the stay removed; if the court agrees, your home could still end up on the auction block within a month or two. Knowing the answer to, can chapter 13 stop foreclosure can be a major benefit and the lender may decide to accept your repayment terms before the auction occurs. Many lenders realize that if they accept your terms they will receive full payment; if they sell your home at auction, they may lose money.