- Filing for bankruptcy grants you what is known as an "automatic stay" by the court. This means your creditors, including those attempting to foreclose on your property, are legally barred from continuing collection practices until your bankruptcy petition has been resolved. The automatic stay is granted by the court automatically, applies to all chapters of bankruptcy and requires no specific petition or hearing.
- Your application for bankruptcy cannot stop a foreclosure if it is already in progress. According to legal information website Nolo, any foreclosure proceedings that are filed before your application for bankruptcy are exempt from the automatic stay law which bars other creditors from pursuing you for debts. This means you could wind up having to deal with losing your home while your assets are being liquidated to pay your creditors in accordance with your bankruptcy case.
- Chapter 7 bankruptcy wipes away only unsecured debts such as credit cards and medical bills. Your mortgage and other other secured debts like a car loan remain untouched. If your home survives the Chapter 7 liquidation process and it is not sold off by the court, you may be able to dig yourself out of the foreclosure process before a formal foreclosure hearing is held. Since your finances are no longer tied up in paying your credit cards you may be able to consolidate your finances, pay your back mortgage payments and keep your home.
- Chapter 13 bankruptcy is different from Chapter 7 in that the court specifically halts foreclosure proceedings on secured debt like home and business loans. If your repayment plan in accordance with Chapter 13 regulations is approved by the court your lender is legally barred from pursuing foreclosure actions against you or contacting you in regards to your debt as long as you make timely debt payments to your court-appointed trustee.
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