Will Filing for Bankruptcy Stop My Foreclosure?

If you’re thinking the words “bankruptcy” and “foreclosure” at the same time, you’re probably under a great deal of stress due to financial issues.  If that’s the case, the first thing you should do is slow down, take a breath, and try to relax.  The good news is that you are not the first person in a situation like this, and you won’t be the last. The laws surrounding bankruptcy and foreclosure are well established and give you plenty of options for foreclosure assistance.  Knowing your rights and the options you have will help reduce your stress, so learning as much as you can is a good step.

Does a bankruptcy stop a foreclosure?

Bankruptcy doesn’t necessarily stop foreclosures, but in most cases they do put them on hold for a while. That’s because federal law provides for an automatic stay of a whole list of legal proceedings, including foreclosures, when a bankruptcy is filed.  A stay is like a judicial pause button—when a court issues a stay, it means whatever legal process the stay concerns cannot move forward until the court removes the stay.  Under federal law, when a bankruptcy is filed, a stay goes into effect automatically and stops a scheduled foreclosure sale, at least temporarily.  In most cases, the stay lasts until the bankruptcy proceedings conclude.

What happens during bankruptcy?

There are different kinds of bankruptcies, and property is treated differently in each.  The most common kinds for homeowners are Chapter 7 bankruptcies and Chapter 13 bankruptcies.  In a Chapter 7 bankruptcy, and only in certain situations,  the court oversees the sale of assets from the filer’s property and uses the proceeds to pay the debts.  The outcomes of Chapter 7 bankruptcies can be very different depending on the circumstances.  At the very least, a Chapter 7 bankruptcy will give the property owner some extra time to figure out what to do.  In some cases, selling the property that would be foreclosed upon will be unavoidable.  However, if the property’s value exceeds the owner’s debts, then at least he or she will receive a portion of the proceeds from the sale.  In other cases, it may be possible to liquidate enough assets to reinstate a homeowner’s mortgage and avoid the foreclosure altogether.

Chapter 13 bankruptcies are different.  Instead of liquidating property, in a Chapter 13 bankruptcy, the court oversees the reorganization of the estate’s debts into a repayment plan that usually lasts between three and five years.  Delinquent home mortgages are among the debts that can be restructured, so in some cases a Chapter 13 bankruptcy can also help avoid a foreclosure.  To do so, however, the owner must have a sufficient income stream to make the mortgage payments while repaying the overdue debt.

Financial insecurity is terribly stressful, but bankruptcy is a powerful tool available to struggling property owners to find security and relieve that stress.  Our firm has been guiding families and homeowners through the bankruptcy process for years, and our attorneys are experts on the rights and legal protections bankruptcy provides to struggling estate owners.  If you need help and would like to speak with an attorney about your options, please call us today to arrange a free consultation.

Posted in: Bankruptcy