Will a Bankruptcy Stop a Foreclosure?
One of the main reasons a debtor may file a bankruptcy is to take advantage of the automatic stay that goes into effect upon the filing of a bankruptcy. The automatic stay prevents creditors from taking any legal action whatsoever against the debtor, without a court order. A violation of the automatic stay at a minimum is null and void but sanctions can also be imposed on the wrongdoer including an award of attorney fees and punitive damages.
In a Chapter 7, all the property that the debtor owns in the world at the time the petition is filed becomes part of the bankruptcy estate. Even property that the debtor selects as exempt is property of the estate until exemption claims are filed. All debts owed at the moment the petition is filed are discharged unless an exception applies.
When real property is involved, the court may grant relief from an automatic stay in order for the lender to repossess, pursue foreclosure, or take part in proceedings outside the bankruptcy forum. In order for the lender to proceed, it must bring a motion for relief against the debtor's collateral. For example, if you file for bankruptcy the day before your house is to be sold in foreclosure proceedings, you are behind in scheduled payments, there is inadequate equity in the property and you have no way to keep the property it is likely that the court will grant the lender relief from the automatic stay and let it foreclose.
Getting rid of your unsecured debt in a Chapter 7 may allow you to afford the mortgage payments. You may be able to put off a foreclosure while in bankruptcy but you still must negotiate with the lender to repay the past due amount. A bankruptcy may help you at first but sometimes it is only a short term solution. Also, a Chapter 7 can only work if you have little or no equity in your home. Otherwise, the trustee can force the sale of your home.