A bank or mortgage company can take back a home or other real estate when the mortgage is in default. The law provides some protections against foreclosure, including a notice period before the actual sale of the home, and a redemption period, which gives a property owner time to obtain new financing to keep the property.

A bankruptcy will stop a foreclosure sale if the bankruptcy case is filed with the bankruptcy court BEFORE the sheriff sale is held. If no plan is made (either through a Chapter 13 plan or some other method to catch up on the mortgage after filing a Chapter 7), the mortgage company may ask the bankruptcy judge for permission to foreclose.

Even if no attempt is made to catch up on a mortgage in default, a bankruptcy filed before a foreclosure sale will prolong the period of time a homeowner will have before they must leave the home. This approach allows a bankruptcy debtor a chance to save up some money by not having to pay a mortgage payment and remain in the home during the post-foreclosure redemption period. The savings could be used for a down-payment on a new home.