Legal•Info

Stop Foreclosure

If a debtor has decided to go forward with the bankruptcy process, the best way to avoid foreclosure on his or her home is to attempt to file the petition under Chapter 13 of the Bankruptcy Code rather than under Chapter 7.

Chapter 13 bankruptcy allows debtors to repay all or a portion of their debts to creditors over a three- to five-year period. Debtors with income under their state's average income level qualify for Chapter 13 bankruptcy and are generally given three years to repay their debts. Debtors who qualify for Chapter 13 Bankruptcy, but who have income that is above the state level, are generally given five years to repay their debts.

Upon filing for Chapter 13 bankruptcy, most actions against the debtor are required to stop. This includes the foreclosure on the debtor's home. After this requirement occurs, the debtor can attempt to bring the past-due mortgage payments to current status.

Those who file Chapter 13 bankruptcy are required to continue making their mortgage payments on time during the Chapter 13 repayment period. If they fail to do so, foreclosure on their home is likely to occur. Also, if the debtor fails to file a petition for Chapter 13 bankruptcy before a foreclosure sale takes place, he or she may lose their home as well.

Under Chapter 7 of the Bankruptcy Code, the assigned trustee categorizes the debtor's assets as either exempt or non-exempt depending on state or federal laws. The assets that are considered to be non-exempt are sold. Upon selling the debtor's assets, the trustee will disperse the proceeds to the rightful creditors. Many debtors can protect their property because it is considered exempt by federal or state law. The Bankruptcy Code was intended to achieve uniformity in exemptions by issuing minimum exemptions, and by allowing debtors to choose between the federal law's exemption statutes and the exemptions allowable in their state. Thirty-four states have opted out of the federal schedules for exemptions, however, and require their citizens to claim exemptions based solely on state law. In these states, a debtor's property may not be subject to exemption if his or her state's law does not allow the property to be exempt.

Unfortunately, the debtor's property is often subject to either liens or mortgages that give the property to certain creditors.

It is important to note that debtors may be able to convert their Chapter 7 Bankruptcy case to either a Chapter 11, 12, or 13 so long as they are eligible. This may increase the chances of stopping foreclosure on the debtor's home.