- Generally, when you file for bankruptcy your creditors cannot collect from you by virtue of the automatic stay. This includes the lender on your mortgage. The automatic stay comes into play immediately after you file your bankruptcy petition. The bankruptcy court wants to give you time to sort out your finances, figure out your next steps and have a bankruptcy trustee pay your creditors in an orderly manner as set forth in the Bankruptcy Code. A creditor who willfully violates the automatic stay could face sanctions.
- If you file for Chapter 7 bankruptcy, the automatic stay may last as little as three months. Once you are no longer protected by the automatic stay, you must pay all debts that were not discharged in your bankruptcy case. If you are in arrears on the payment of your home, you will need to have paid those arrears by the time your bankruptcy case ends, or your lender will foreclose on your home. In some cases, a lender will recognize that you cannot pay your mortgage or that you do not intend to pay your mortgage while you are in the middle of your bankruptcy case.
- If the lender were to continue foreclosure proceedings in the middle of your case without permission, the lender would be in violation of the automatic stay. To avoid the consequences of violating the stay, the lender will file a motion with the bankruptcy court to lift the automatic stay. While going through a Chapter 7 bankruptcy case, you can only keep secured property, such as a home with a mortgage, if you make payments on the home as they come due. These are called adequate protection payments.
Lifting the Stay
- When you do not make adequate protection payments on the home, your lender will attempt to foreclose on the home by requesting that the stay be lifted. The bankruptcy court will likely grant the stay and allow the lender to foreclose on your home while you are in the middle of your bankruptcy case, if you appear unable to continue making mortgage payments or unable to cure arrearages.