In the case of a real estate foreclosure, the debtor files the Chapter 13 case which imposes an immediate automatic stay and stops the foreclosure. See The Automatic Stay. This must be done before the foreclosure auction takes place and notice of the automatic stay needs to be given to the necessary parties.
PLAN TO CURE THE DEFAULT
Once the Chapter 13 case is filed, the debtor must do something to “cure” the default on the loan. The “cure” comes through a Plan. The Plan takes a little time to propose and to get confirmed by the court, so what happens in the meantime?
Well, the court is not going to simply let the debtor sit there and enjoy the benefits of property ownership without the burden of making payments. So what actually happens under the Chapter 13 law and the local rules of the bankruptcy court is that the debtor must immediately begin making regular monthly payments again on the mortgage.
Payments must commence with the next payment that comes due following the filing of the bankruptcy case. Then it is up to the debtor’s Plan to demonstrate how the defaulted amounts will be “caught up” or paid.
GRADUAL CURE OF DEFAULT
The best way to understand the Chapter 13 process is to think of it as if the debtor is drawing a line in the sand. The debtor says, “I am buried up to my neck in debt and delinquent payments; I am not going to go any deeper in the hole; I am going to start making regular monthly payments and in addition to that I will pay some extra money to gradually catch myself up.”
It is the payment of those extra monies that will allow the debtor to cure the default on his or her property over a reasonable period of time. The concept is really fairly simple although in practice it can become quite complicated.
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