We looked at this in a post last month but let's talk about how a 13 1) stops an upcoming foreclosure sale, 2) prevents the bank from foreclosing while you repay the arrears, and 3) requires the homeowner to meet certain obligations in order to keep the home under the bankruptcy protection.
When a bankruptcy case is filed, the "automatic stay" goes into effect "the moment a bankruptcy petition is filed", halting all collection activities including foreclosure. The homeowner doesn't have to file bankruptcy then request a hearing on the matter then hopefully prove to the court that they have the ability and intent to save the home, etc; if a case is filed, the sale is stopped.*
Not only does filing a 13 stop the pending foreclosure sale, the repayment plan will include any past due amount for the mortgage and ensure that the loan will be current upon the successful completion of the 13. The specifics of every Chapter 13 repayment plan are slightly different, but generally speaking a portion of each monthly payment will go towards the mortgage arrears, bringing that delinquent amount down bit by bit over the 3 to 5 year term of the plan.
Of course the homeowner has obligations they must meet in order to receive the continued protection of the bankruptcy for the house. The primary obligations are payment related: 1) the borrower must start making regular monthly payments to the mortgage company and keep making those payments going forward and 2) the borrower must pay the Chapter 13 payments in order to catch up on the past due amount that existed at the time of filing. If either of these payments are deficient, the mortgage company can request that the court remove the home from the bankruptcy protection, allowing them to collect (and potentially foreclose) as if the bankruptcy didn't exist.
If you're facing foreclosure or have good reason to believe that you will be in the near future, give me a call so we can go over your options and move one step closer to saving your house!
*There are very limited circumstances in which merely filing a bankruptcy will not protect the house, such as if the filer has previously filed so many times that the bankruptcy court has barred them from filing again for a certain period of time OR if the property in question is not in any way legally owned by the filer.