The answer to that question is maybe. Since a Chapter 13 bankruptcy allows you to reorganize your debts through a plan approved by the bankruptcy courts, it may be possible to save your home from a foreclosure. Let's begin by discussing how a chapter 13 bankruptcy filing works. When you elect to file a Chapter 13, you are telling the bankruptcy judge that you wish to repay your debts, however are unable to do so at the present time.
If the court agrees to allow you to combine any past due mortgage payments with your other debts you can begin paying off that past due mortgage debt with all your other debt in one lump monthly sum. Filing for a Chapter 13 bankruptcy requires a steady income so you can afford to make your current monthly mortgage payments in addition to the monthly amount required to meet the escrow payments set by the court-appointed trustee.
Before a bankruptcy trustee can determine how much money should be placed in an escrow account each month, the court will look at the homeowner's income and assets along with his or her total debt. Once a bankruptcy is filed the court issues an automatic stay preventing creditors from attempting to collect on any debt, and that includes your mortgage lender. Once a plan is approved by the court the bankruptcy trustee then begins distributing funds from the escrow account to the creditors.
It is important to keep in mind that there are always exceptions that can arise in every case. One is that a lender can request a "motion to lift a stay," which would allow it to pursue collection efforts. The request may or may not be granted by the court. If the bankruptcy court lifts the stay for that lender, that lender can proceed to collect on any past due debt or continue with the foreclosure process, depending on what stage in the process your lender is at.
Creditors' rights laws state they must show good cause for the motion to request removing the automatic stay. The lender's motion may include demonstrating that the homeowner has filed multiple bankruptcies in the past in order to obtain an automatic stay to prevent the home from being sold at an auction. This is one reason it is important to choose an experienced bankruptcy attorney who will guide you through the obstacles in your specific circumstances and set you on a path to success, rather than a path wrought with delays and challenges.
Source: Realty Biz News, "Can Bankruptcy Prevent a Foreclosure?," Daniel Doran, May 22, 2012