A mortgage loan, like a car loan, is secured debt since the amount owed is secured against the physical possession of the real property (the house or car). This means that if the debtor begins missing payments or is otherwise deemed to be in default (by making partial payments or conducting an unauthorized transfer of the property for example) then the lender has the right to reclaim the property that secures the debt: foreclose on the house or repossess the car. The exact specifics of what is allowed, when, and under what circumstances differs widely, but one thing that is certain is that bankruptcy cannot offer any permanent relief for secured debt. Nevertheless, bankruptcy can be used as an effective stalling tactic to prevent an immediate foreclosure on the property or auto repossession.

As soon as a petition is filed for either Chapter 7 or Chapter 13 bankruptcy, the court immediately issues an Order for Relief. This court order includes “automatic stay”, which orders creditors to stop all collection efforts immediately, including foreclosure. As soon as the bankruptcy court issues the Order for Relief, foreclosure proceedings are immediately suspended until the bankruptcy case is resolved. This was a large part of the reason that the institutional lenders that drafted the 2005 bankruptcy law made it much more difficult and time consuming for debtors to make the initial filing by adding the means test, the credit counseling requirements and other obstacles to a quick filing.

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