Chicago Bankruptcy Question: How does Chapter 13 stop a foreclosure?

Chicago Bankruptcy Question of the Day: How does Chapter 13 stop a foreclosure?  Preventing or stopping a foreclosure is one of the primary reasons that people file for Chapter 13 bankruptcy in the Chicago area.  A mortgage company is permitted to start a foreclosure process as soon someone falls more than thirty days behind on their mortgage.  Usually, however, they will not start the foreclosure process until that person is at least three months behind.

Foreclosure itself is a state court process by which the mortgage company seeks to have a property sold in order to pay off the mortgage, or at least pay as much as the market will bear toward the mortgage.  In Illinois, the foreclosure process takes a minimum of seven months unless there are extenuating circumstances that allow the mortgage company to act more quickly, which are rarely approved by the court.  At the end of the foreclosure process, a sale is conducted and the property is auctioned off with the proceeds going to pay the debt(s) owed on the property.  Any remaining debt, called a deficiency balance, is then an unsecured debt, but the individual liable for the mortgage is still personally liable for that debt.

Filing for Chapter 13 bankruptcy protection causes the federal bankruptcy court to issue an order, called the Automatic Stay of Bankruptcy, that requires all creditors to cease any and all collection actions.  Other than in extreme circumstances where multiple Chapter 13 cases have been filed in a short period of time, it is this order that requires the foreclosure to be stopped.  To stop a foreclosure, it is not relevant whether the Chapter 13 bankruptcy is filed the day after the foreclosure is begun or the morning of the scheduled sale of the property.

Stopping the foreclosure is only the first step in a successful Chapter 13 driven by a foreclosure.  If notice is not properly issued, then a property can still be sold to a "bona fide purchaser" at a scheduled foreclosure sale and the property will be lost.  If the Chapter 13 plan is not feasible, or not properly constructed, then the relief of the Automatic Stay of Bankruptcy is nothing more than a temporary stay of execution.  For a Chapter 13 bankruptcy to be truly effective in stopping a foreclosure, the bankruptcy lawyer representing you has to know what they are doing and prepare a plan of reorganization that will work.

This is one of the reasons it is vital for you to retain an experienced and qualified Chicago bankruptcy attorney.  At Ledford & Wu, we only practice bankruptcy and consumer rights and we only do so in the Chicago area.  Every lawyer in the firm has years of experience and a solid track record of keeping clients in their homes.  Call us today for a free consultation to see if Chapter 13 bankruptcy is the right option to keep you in your home.

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