If you file for Chapter 7 bankruptcy protection, any legal action stops until the court grants your lender relief, or until your bankruptcy is discharged or dismissed. Bankruptcy is usually a short-term solution, since most Chapter 7 bankruptcies discharge in about 60 days. The bankruptcy will remain on your credit for 10 years from the filing date, so you should only consider bankruptcy as a last resort.
Lenders usually require a substantial down payment to purchase an income property. Typical income property loans are for 70 percent of the property's value, or less. The foreclosure rate on income property is usually low, because the owner typically has enough equity to sell the property if he gets into financial difficulty. In 2011, property values are still declining. This has drastically reduced or eliminated equity. Income property foreclosures are becoming more common in 2011.
If your lender does not want to wait, he can petition the court for a hearing for a relief-from-stay. This will allow the lender to start the clock again, and proceed with the foreclosure action. It is possible that the court will not grant a relief-from-stay. This can happen if you can prove that you are in the process of selling the property and you have a binding offer, or if you can prove that the foreclosure would be a financial hardship, because you have substantial equity in the property. You will probably need a recent independent appraisal to convince the court you have equity.
It is possible to receive a loan modification on an income property. Another option would be to ask your lender to allow a short sale, and this is more likely than a loan modification. Lenders lose a considerable amount of money if they foreclose on a property. They usually come out ahead if they allow a short sale. If you agree to maintain the property until it sells, it will usually sell at close to market value.
You should never wait until a foreclosure action starts. Contact your lender and discuss alternate solutions as soon as you experience financial problems.