When you file a Chapter 13 or Chapter 7 bankruptcy in Michigan, the court automatically issues an Order for Relief that includes an "automatic stay." The automatic stay requires all your creditors to immediately stop trying to collect form you. If your home is scheduled for a foreclosure sale, the sale will be legally postponed while the bankruptcy is pending--typically for three to four months. However, if the lender makes a motion to lift the stay, and they generally do, the creditor usually obtains the bankruptcy court's permission to proceed with the sale. You probably will not get the full three to four months but the sale will be postponed by perhaps two months, or even more if the lender is slow in pursuing the motion to lift the automatic stay.
Your best course of action is to work out a deal with the lender before filing for bankruptcy. If you get too far behind on your mortgage payments, a lender may take steps to foreclose. The foreclose means that the lender is enforcing the terms of the loan by selling the house at a public auction and taking payment of your loan out of the auction.
If you just cannot afford the house and your efforts to get mortgage relief through the lender has failed, then bankruptcy may help. Here are some ways that filing for bankruptcy can help you.
Many people will do whatever they can to stay in their home for the indefinite future. If that describes you, and you're behind on your mortgage payments with no feasible way to get current, the only way to keep your home is to file a Chapter 13 bankruptcy.
When you file Chapter 13 bankruptcy you must submit a proposed payment plan that lets you pay off the late, unpaid payments over a period of time (three to five years). You have to be able to show that your income is enough to make your current mortgage payment at the same time you're paying off the late payments. Assuming you make all the required payments up to the end of the repayment plan, you'll avoid foreclosure and keep your home.
Chapter 13 may also help you discharge your second or third mortgage. If your house has lost value and only has enough value to secure the first mortgage, then you can "strip off" the second and third mortgages and categorize them as unsecured debt. Unsecured debts take last priority under Chapter 13 and often do not have to be paid back at all.
If you have questions about delaying a foreclosure by seeking Bankruptcy protection, contact Ann Arbor / Ypsilanti area bankruptcy attorney Lander McLoyd.