The answer to that question is both yes and no.  In this market, lenders are constantly updating their policies to figure out how to lose as little money as possible.  No surprise that we see banks being more aggressive towards people in bankruptcy since we’ve already seen a drop off in the number of modifications being approved as well as a stricter set of guidelines (and timelines) as they relate to short sales.

To answer the question, yes, a lender stops the foreclosure process if you decide to file for bankruptcy.  A couple of years ago, a discharged bankruptcy was basically a license to start over with your bank because they would pretty much leave you alone until months afterward. Like most things, we now see the banks taking a stricter approach towards how they treat those in this process.

Please keep in mind that I am not an attorney and so am not giving legal advice, I am simply saying some important things to be mindful of, in a very basic, easy to understand way.

A bankruptcy acts as a kind of restraining order against your lender.  However, your lender doesn’t want to be blocked from being able to foreclose on you because they want to take possession of the house so they can turn around and sell it.  What they do, to enable themselves to not have to wait until your bankruptcy is discharged, is to file a Motion for Relief of Stay.  Once they file this and it’s granted, it lets them continue whatever they were trying to do prior to your filing.  In this case, they could pick the foreclosure up right where they left off.

About half of our clients who are in active bankruptcy have lenders who have filed these motions which is way up from what we were seeing a couple of years ago.  This seems to be a trend by lenders who are acting with greater urgency to reclaim their assets.   The only way I have seen a lender not foreclose on someone after relief has been granted to them, is when the homeowner is in the short sale process with a qualified buyer ready to purchase the house.