Can the bank foreclose while I'm in bankruptcy?

Yes, if you’re behind on your mortgage, the bank can foreclose while you’re in bankruptcy. There are two common situations in which foreclosure can take place during a bankruptcy.

1. You’ve fallen behind on mortgage payments: While filing bankruptcy will temporarily stop foreclosure, it won’t get you out of paying the mortgage. If you file bankruptcy owing past due mortgage payments, the foreclosure process will be disrupted, but only temporarily. The bank will file a motion asking for permission to foreclose and there won’t be a whole lot your attorney can do to stop them. Despite what you may have heard about the broad protections of bankruptcy, filing a case doesn’t give you a free house.

2. You’ve surrendered your home in bankruptcy: Homeowners who find themselves hopelessly underwater often elect to surrender their home in a bankruptcy. Surrendering the home allows the borrower to effectively remove their personal guarantee from the note. The bank is given the property with no ability to come after the borrower for a deficiency judgment. Many borrowers are unaware that foreclosure will follow surrender. Why? The bank will still foreclose on the home so that it can clear title out of the borrowers name in preparation for a sale.

As a practical matter, foreclosure after a surrender will likely take place after the typical chapter 7 case has closed. In chapter 13, the foreclosure will occur while the repayment plan is pending. For more information on foreclosure and surrender see: I Surrendered My House in Bankruptcy, You Mean to Tell Me I Still Own It?