One of the most immediate effects a Chapter 13 bankruptcy will have when you file is what’s known as the automatic stay. The automatic stay stops all your creditors from taking actions against you to collect their debts, including foreclosure. This means a lender can’t take possession of your home and sell it in order to repay a loan that you’ve defaulted on. Obviously, if your home is in foreclosure or the creditor is threatening foreclosure, it means that you’re behind on making your mortgage payments. If you continue to not make your mortgage payments, a bankruptcy, under any chapter, will only buy you time before foreclosure proceedings start again. This is because bankruptcy only protects you from being held liable for paying your loan. Your house, however, doesn’t receive the same protection if it was used as collateral to secure a loan. The only way you can protect your house is to make payments on the loan. A Chapter 13 bankruptcy can be an effective tool not only in stopping foreclosure but it can, unlike a Chapter 7 filing, enable you to receive additional time to catch up with your mortgage payments without losing your home. You’ll usually be allowed up to five years to repay your delinquent mortgage payments in a Chapter 13 repayment plan. Since bankruptcy affects only debts that you owe on or before you filed, you’ll still be responsible for your current mortgage payments as well, but usually your monthly payments can be reduced to a much lower amount than you’re used to paying.
