The filing of a bankruptcy petition, either Chapter 7 or Chapter 13, stops collection activity and other lawsuits involving your home, including foreclosure activity on your home.  That does not mean, however, that the debtor automatically get to keep the home.   Your creditor might successfully get relief from the bankruptcy stay.   Under current bankruptcy law, the court is powerless to alter the terms of a first mortgage on a primary home.  However, certain arrangements may be possible:  1) Under Chapter 7, a debtor may be able to keep his home and still get her unsecured debts (such as credit cards, hospital bills, utility bills, etc.) discharged.  In order to get the benefit of this arrangement, the Debtor must sign a reaffirmation agreement and must be CURRENT ON THE HOME PAYMENTS.  Of course, if the debtor does not want to keep the home, or is behind and cannot pay, the debtor can surrender the home to the mortgage company.   The bankruptcy discharge will relieve the debtor of paying any further obligation to pay mortgage notes, past or present.   2)  Under Chapter 13,  the debtor still may be able to keep the house even if  the debtor is behind on the notes.   In this case the debtor must qualify (under the “means” income test) to show enough income to enter into a plan (three-to-five years) to pay the arrearage.   A Chapter 13 plan that is approved by the court and complied with by the debtor will prevent foreclosure.

             If the debtor owns her home outright and finds herself in bankruptcy court because she still cannot pay other obligations, she still may be able to keep the home as “exempt” property under the bankruptcy laws.  Under Chapter 13, the debtor may be able to keep the house even she’s behind on the notes,  but must qualify (with enough income) to enter into a plan (three-to-five years) to pay the arrearage.   A Chapter 13 plan that is approved by the court and complied with by the debtor will prevent foreclosure.

If there is no mortgage and the debtor own her home outright and finds herself in bankruptcy court because she still cannot pay her other bills, the debtor’s house may be  “exempted” but only up to about $30,000.  The bankruptcy could sell the house, pay the debtor the $30,000 and pay the creditors.