Behind on Your Mortgage? Chapter 13 Can Stop a Foreclosure

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Can Chapter 13 stop foreclosure in Virginia? Yes. If a Chapter 13 bankruptcy is filed before the foreclosure sale, the automatic stay will ordinarily stop the sale immediately. For homeowners facing a typical mortgage foreclosure, this is one of the most powerful protections available under Chapter 13.

Chapter 13 can then provide a way to catch up on past-due mortgage payments over time while maintaining the regular mortgage payment going forward. The bigger question is usually not whether the filing will stop the foreclosure, but whether the homeowner has enough income to make a workable Chapter 13 plan and keep the mortgage current after filing.

Timing is critical. If you have received a foreclosure notice or already have a sale date scheduled, contact a bankruptcy attorney as soon as possible rather than waiting until the day of the sale.

How Does Chapter 13 Stop a Foreclosure?

Filing a bankruptcy case normally creates an automatic stay, which prohibits most creditors from continuing collection activity against the debtor or property of the bankruptcy estate. That generally includes proceeding with a mortgage foreclosure. Federal bankruptcy law expressly stays acts to enforce liens against property, subject to certain exceptions.

Once a Chapter 13 case is filed, we notify the mortgage company, foreclosure trustee, and other appropriate parties of the bankruptcy filing so they know the foreclosure cannot continue while the automatic stay remains in effect.

There can be exceptions, particularly in cases involving prior bankruptcy filings or a previous court order granting relief from the stay, so someone facing foreclosure should not assume that merely preparing to file bankruptcy will stop a sale. The bankruptcy case must actually be filed and the automatic stay must be in effect.

How Does Chapter 13 Help You Catch Up on Mortgage Payments?

Chapter 13 allows a debtor to cure the past-due mortgage balance over time while maintaining the regular mortgage payments going forward. The Bankruptcy Code specifically permits a Chapter 13 plan to cure a default within a reasonable time and maintain payments on a long-term secured debt such as a home mortgage.

For example, someone who is $24,000 behind on a mortgage does not necessarily have to pay the entire $24,000 immediately to save the home. The mortgage arrearage can generally be addressed through the Chapter 13 plan while the debtor resumes making the regular post-bankruptcy mortgage payments.

The exact Chapter 13 plan payment depends on the mortgage arrears, other debts, income, expenses, and other requirements of the case.

Do You Have to Keep Making Your Regular Mortgage Payment?

Yes. Chapter 13 is not a payment holiday.

The debtor generally must remain current on the regular mortgage payments that come due after the bankruptcy is filed, while the Chapter 13 plan addresses the older arrearage.

This is an important part of determining whether Chapter 13 is feasible. If the debtor cannot afford both the ongoing mortgage obligation and the Chapter 13 plan payment needed to cure the arrears, simply filing the case will not provide a permanent solution.

A mortgage creditor may seek relief from the automatic stay if post-bankruptcy payments are not maintained or other requirements of the case are not satisfied.

How Late Can You File Chapter 13 Before a Foreclosure Sale?

Federal bankruptcy law generally permits a debtor to cure a default on a principal residence through Chapter 13 until the residence has been sold at a foreclosure sale conducted under applicable law.

That makes the foreclosure sale itself an extremely important deadline.

As a practical matter, do not plan to file at the last minute. Filing a bankruptcy case requires information, documents, signatures, credit counseling, and a valid court filing. Waiting until shortly before the scheduled sale creates unnecessary risk.

If you already have a foreclosure date, give your attorney the foreclosure notice immediately and make sure the attorney knows the exact date and time of the scheduled sale.

What Notice Do You Receive Before a Virginia Foreclosure?

Virginia generally uses a nonjudicial foreclosure process under a deed of trust, meaning the mortgage company ordinarily does not need to file a traditional foreclosure lawsuit before selling the property.

For owner-occupied residential real estate, Virginia law generally requires written notice of the proposed foreclosure sale to be mailed to the owner at least 60 days before the sale. The notice identifies the time, date, and place of the proposed foreclosure sale.

Receiving that notice does not mean the homeowner has to leave immediately. It does mean, however, that there is now a definite deadline for deciding whether the mortgage can be brought current, modified, refinanced, sold, or addressed through Chapter 13.

What If a Foreclosure Sale Is Already Scheduled?

A scheduled foreclosure sale usually can still be stopped with Chapter 13 as long as the bankruptcy case is filed before the sale occurs.

If the property has not yet been sold and a Chapter 13 case can be properly filed before the sale occurs, the automatic stay will generally prevent the foreclosure from going forward.

Once the case is filed, the automatic stay generally prevents the foreclosure from going forward. There are limited exceptions involving issues such as prior bankruptcy filings or previous stay-relief orders, but those are not the typical case.

This is one reason we ask clients facing foreclosure to provide the actual notice rather than simply telling us that the house is “in foreclosure.” There is a major difference between:

• being several months behind on a mortgage;
• receiving an acceleration or foreclosure notice;
• having a specific foreclosure sale scheduled; and
• having the foreclosure sale already occur.

The closer you are to the sale date, the more urgent the situation becomes.

What If the Foreclosure Sale Already Happened?

Once a residence has already been sold at the foreclosure sale, Chapter 13 generally can no longer use its mortgage-cure provisions to undo the sale simply by filing bankruptcy afterward. Section 1322(c)(1) expressly limits the right to cure to the period before the residence is sold at the foreclosure sale.

There may occasionally be separate issues concerning whether a foreclosure sale was properly conducted, but that is a very different analysis from using Chapter 13 to cure mortgage arrears.

For someone whose goal is to save the home, the safest course is to address the bankruptcy before the foreclosure sale takes place.

What Happens to Foreclosure Attorney Fees and Costs?

Once the foreclosure process begins, the mortgage balance may increase because of allowable attorney fees, trustee expenses, advertising costs, property inspections, and other charges provided for by the loan documents and applicable law.

In Chapter 13, the amount necessary to cure a mortgage default is generally determined under the mortgage documents and applicable nonbankruptcy law.

Those allowable amounts may therefore become part of the mortgage arrearage that must be addressed through the Chapter 13 plan.

This is another reason that dealing with mortgage arrears earlier can be beneficial: the longer the foreclosure process continues, the more fees and costs may accumulate.

Chapter 7 vs. Chapter 13 When Facing Foreclosure

Both Chapter 7 and Chapter 13 normally create an automatic stay when the case is filed, but they serve very different purposes when the debtor wants to keep a home.

Chapter 7 may temporarily stop a pending foreclosure, but it does not generally provide a multi-year mechanism for curing mortgage arrears. If the debtor remains substantially behind and cannot otherwise resolve the default, the lender may eventually seek permission to proceed with foreclosure.

Chapter 13, on the other hand, is specifically designed to allow a qualifying debtor to cure mortgage arrears over time while maintaining regular mortgage payments.

For someone who wants to keep the home but cannot immediately pay the entire past-due balance, Chapter 13 is usually the chapter that provides the meaningful foreclosure-cure mechanism.

What If You Are Working on a Mortgage Modification or Forbearance?

A pending loan-modification or loss-mitigation request does not necessarily mean that a scheduled foreclosure sale will be canceled.

Likewise, filing Chapter 13 does not automatically force the mortgage company to permanently modify the loan.

Depending on the circumstances, a debtor may continue pursuing a mortgage modification or other loss-mitigation option while in Chapter 13. Any proposed modification must also be evaluated in light of the bankruptcy case and the debtor’s confirmed or proposed Chapter 13 plan.

If you are already working with your mortgage servicer on a modification, bring all recent correspondence and proposed terms to your bankruptcy attorney.

What Should You Bring to a Bankruptcy Consultation if Foreclosure Is Approaching?

If you have received a foreclosure notice, bring or send us:

• the foreclosure notice showing the scheduled sale date and time;
• your most recent mortgage statement;
• any default, acceleration, or loss-mitigation letters from the mortgage company;
• information showing approximately how many payments you are behind;
• any pending mortgage-modification or forbearance paperwork; and
• recent proof of household income.

The more information we have about the mortgage and the foreclosure timeline, the more quickly we can determine whether Chapter 13 is a workable option.

Talk to a Richmond Bankruptcy Attorney Before the Foreclosure Sale

If you are asking whether Chapter 13 can stop foreclosure in Virginia, the most important issue is often timing. Chapter 13 can provide powerful protection for homeowners who need time to cure mortgage arrears, but the case generally needs to be filed before the property is sold at foreclosure.

Kane & Papa represents individuals throughout the Richmond area in Chapter 13 bankruptcy cases. If you are behind on your mortgage, have received a foreclosure notice, or already have a foreclosure sale scheduled, contact us as soon as possible so we can review the mortgage arrears, sale date, income, and other circumstances and determine whether Chapter 13 can help you keep your home.