Whenever any bankruptcy case is filed, the creditors are usually stopped from taking action to collect the debts that were owed at the time of the bankruptcy. This feature of bankruptcy is called the “automatic stay.” The automatic stay, if it applies, stops a foreclosure or repossession from going forward. However, no bankruptcy filing allows a debtor to keep property that is security for a loan without making payments on the loan. For example, debtors with home mortgages and car loans, cannot keep their homes and cars in Chapter 7 bankruptcy without making payments.
As soon as the bankruptcy case is closed, the automatic stay terminates, and the creditor can proceed with foreclosure or repossession. Moreover, if the debtor is not current on payments, creditors may ask the court to terminate the automatic stay while the bankruptcy is still pending, and, in Chapter 7, creditors are usually able to terminate the automatic stay. In order to keep property that is security for a loan, a debtor often must enter into a “reaffirmation agreement” with the creditor who holds the lien on that property. Usually, a creditor will require that the debtor be current on the loan in order to “reaffirm” the debt.
If a debtor has a foreclosure pending or they are behind in house payments, and they want to save their home, they would want to discuss with their attorney a Chapter 13 bankruptcy.