For homeowners who file bankruptcy in order to save their homes, there is always a fear of falling behind on the payments and ending up back in foreclosure with their credit scarred even further. But the vast majority of homeowners who do file a Chapter 13 bankruptcy will end up back in foreclosure if they do not work with the right attorney and are not prepared to meet the requirements of the legal payment plan.
The bank, once the homeowners begin missing the mortgage payment, will start to move towards foreclosure, regardless of whether or not the house is included in the bankruptcy filing. The bank's process will not be much different if they are in the Chapter 13 or have not yet filed, seeking other ways to stop foreclosure first. But the details of the bank's pursuit of foreclosure will vary slightly if the house is included in the Chapter 13 or not. That may change how the bank will go about the foreclosure, but not by very much.
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If the house is not in the Chapter 13 plan, then the bank will just file the foreclosure lawsuit with the county court, get a sheriff sale date, and attempt to sell the house to pay back the defaulted mortgage. This is pretty much how any bank takes a property from homeowners who are not able to make their payments. The overall structure of how foreclosure works varies from state to state, though, so homeowners should check their state foreclosure laws to find out exactly how long the takes and what options they may have to save the house with or without bankruptcy.
But if the house is included in the Chapter 13, then once the homeowners begin falling behind on payments, the bank will petition the court to have the mortgage dismissed from the bankruptcy plan. This is also known as seeking a release of stay, as the stay is what automatically puts the foreclosure process on hold. If the owners were not making the payments, this would be pretty easy for the bank to accomplish -- the Chapter 13 is designed to give people a chance to make the payments on time and get back on track with missed amounts during the length of the plan. If they fall behind, the creditors can have their debt removed and pursue collection activities again.
In that case, then the mortgage company would begin pursuing the foreclosure process once the automatic stay is released. They still have to follow the state foreclosure laws and county rules in order to take the home. Nothing would change any of that, no matter if the house was ever involved in a bankruptcy or not. Once the house is out of the bankruptcy, the lender will follow the usual process of taking back a property to satisfy a defaulted mortgage.
So, there is just that one extra step of getting the house removed from the bankruptcy payment plan, if the homeowners include the house in their Chapter 13 filing. But in any case of foreclosure, the bank will have to follow the laws that dictate how the foreclosure process will work in a particular state. And to know how much time the homeowners have and what options they may have to stop foreclosure before or after bankruptcy, they can search online for their state foreclosure laws and read about various foreclosure solutions.
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