If you own a home and find yourself unable to make your mortgage payments, you might be afraid that you’ll lose your house to the foreclosure process. Avoiding foreclosure though can be done by filing for bankruptcy. Let’s look at how bankruptcy may be an option.
Many people who are struggling financially mistakenly believe that filing for bankruptcy will immediately lead to losing their homes. This is often due to a misunderstanding of what happens when someone files for Chapter 7 or Chapter 13 bankruptcy. In reality, filing for bankruptcy will not result in an automatic loss of your home. In fact, there are several scenarios where you may have options that allow you to keep your home.
Bankruptcy can stop foreclosure in some cases. If you file for bankruptcy under Chapter 7, the automatic stay goes into effect. This means that your creditors must stop all collection activities, including foreclosure proceedings. However, the stay is only temporary, and if you don’t take action to catch up on your mortgage payments, the lender can ask the court to lift the stay and proceed with the foreclosure.
If you file for bankruptcy under Chapter 13, the automatic stay also goes into effect. In this case, a Chapter 13 bankruptcy has the ability to permanently stop foreclosures. It can put you on a path to getting current on your mortgage payments. It allows you to make payments over 3-5 years to your mortgage holder in order to get up to date.
Chapter 13 bankruptcy is a type of bankruptcy in which the debtor, usually an individual, proposes a repayment plan to their creditors. The repayment plan is usually for three to five years and must be approved by the court. Once the repayment plan is approved, the debtor makes payments to their creditors according to the plan. If the debtor completes the repayment plan, their remaining debts are discharged.
Chapter 13 bankruptcy may stop a foreclosure if you file before the foreclosure sale date and meet certain other requirements. Even if you don’t file before the sale date, filing Chapter 13 bankruptcy can stop a foreclosure by your lender after the sale. The key is to speak with a qualified and experienced bankruptcy lawyer as soon as possible to get the process started and find out if avoiding foreclosure through filing bankruptcy is the way to save your home.
Chapter 7 bankruptcy is a process in which a person’s debts are discharged by the court. This type of bankruptcy is also known as “liquidation” or “straight bankruptcy.” In a Chapter 7 bankruptcy, the debtor’s assets are sold off to pay creditors. The debtor may also be required to surrender some of his or her property to the lender. However, in many cases, debtors don’t have to actually sell off any assets.
Chapter 7 bankruptcy can help you stop the foreclosure by eliminating your debt and giving you a fresh start. An automatic stay goes into effect when the bankruptcy case is filed, which prohibits creditors from taking any action against the debtor. After the bankruptcy case is over, the foreclosure process could resume. This includes your mortgage lender, so filing for Chapter 7 can give you the temporary breathing room you need to catch up on your payments and possibly save your home. Again it is best to talk with a bankruptcy lawyer to decide whether Chapter 7 will accomplish saving your home from foreclosure.
When you are facing foreclosure, you may be wondering if you should file for bankruptcy before the foreclosure sale. While bankruptcy can temporarily stop the foreclosure process, it is important to understand that it will not eliminate your mortgage debt. If you file for Chapter 13 bankruptcy, you may be able to work out a repayment plan with your lender and save your home. However, if you file for Chapter 7 bankruptcy, the foreclosure sale will likely go forward. Before making a decision, it is important to speak with an experienced bankruptcy attorney to understand all of your options for avoiding foreclosure.
Foreclosure is a messy and frustrating process for both you and the lender. Despite your best intentions to continue making mortgage payments on time, financial hardship such as job loss, medical emergency, divorce, or other unforeseen events happen. When they do, bankruptcy may be the best option for reducing your debt and avoiding losing your house. If you can no longer afford your home, filing for bankruptcy could help you avoid the foreclosure process.
Kain + Henehan is an experienced bankruptcy firm located in St. Cloud, Minnesota, and serving all of Minnesota. We can discuss with you how avoiding foreclosure by using bankruptcy could be a good option. Contact us by calling (612) 438-8006 or filling out the online form.