Filing Chapter 13 bankruptcy puts an automatic stay into effect that prevents debt collection without court permission. The stay is a very powerful protection because it applies to so many different types of collection activities. The stay will prevent foreclosure of a house, collection letters, telephone calls from creditors, garnishment, lawsuits, repossession of vehicles, etc.
In order to prevent a foreclosure sale the bankruptcy case must be filed before the sale takes place. Once the sale happens it is probably too late to save the home. Filing a bankruptcy case takes time. If a debtor contacts a bankruptcy attorney the night before a foreclosure sale is scheduled then it may be too late to file the case and stay the sale.
There are several reasons why there is some delay between when a debtor first contacts an attorney and when the case can be filed. Debtors have to complete a credit counseling course before the case can be filed. This course may take a couple hours to complete and they should have the certificate of completion in hand before the case is filed. Additionally, bankruptcy attorneys need time to prepare the bankruptcy petition and other related documents and to give notice of the case to the creditors.
If the bankruptcy case is filed but the creditor doesn’t get notice of the bankruptcy filing before the sale occurs, then the creditor or the debtor may have to go through the trouble (and cost) of undoing the foreclosure sale. In Texas, creditors are required to send several notices to the debtor before a property is foreclosed, including a notice of delinquent payments, a notice that the note has been accelerated, and notice of the foreclosure sale. If the creditor is following the noticing requirements and the homeowner is checking their mail then there is no reason that the debtor should be surprised by a foreclosure sale. It is always best to plan ahead and to make arrangements to file the bankruptcy case well in advance of the foreclosure sale.