Will Declaring Bankruptcy Stop Foreclosure?

Need to Stop Foreclosure?

Considering filing bankruptcy as an option to Stop Foreclosure?

If you’ve fallen behind on your mortgage payments bankruptcy may be an option for individuals who are unable to repay their debts.

Bankruptcy is a Federal court procedure that will structure a settlement of those debts, under a judge’s supervision.

There are basically two types of bankruptcy filings:  Chapter 13 and Chapter 7.

If the debtor has enough disposable income, Chapter 13 Bankruptcy allows for debt reorganization and a reasonable debt payment plan through the court.  This plan allocates how each of the creditors will be repaid. This usually occurs over a three (3) to five (5) year period.  In a Chapter 13 Bankruptcy, the creditors are only permitted to collect on the debtor’s former loans via the court.  For the most part, the Debtor is allowed to keep their property and the creditors ultimately end up with less than the full balance of what is owed. Obviously this of Bankruptcy may stop foreclosure for a period of time.

Chapter 7 Bankruptcy allows for a debtor to keep certain exempt property.  Some liens, including mortgages, survive the bankruptcy.  Other assets are sold to pay the creditors.  If the mortgage lender’s interests are not adequately protected, the court may allow the foreclosure proceedings to continue.

The filing of a bankruptcy case temporarily halts foreclosure proceedings. A bankruptcy will not stop foreclosure actions; it will only delay it.

When a person declares bankruptcy, their mortgage lender (as well as other creditors) must stop collection activities – at least for the time being.

If the property is worth less than what is owed to the bank, the bankruptcy trustee (person  assigned to oversee the distribution of assets) will realize there is no equity in the property and could potentially recommend a Short Sale. However, in many cases, they will release the real estate from the bankruptcy and the mortgage lender can continue with a foreclosure action.

A homeowner who is seriously delinquent on their mortgage could declare bankruptcy shortly before the foreclosure action to essentially Stop Foreclosure and buy more time in the home.  However, while declaring bankruptcy is one course of action for someone with multiple delinquent loans and insufficient income to cover all those obligations, those persons should ALWAYS speak with a bankruptcy attorney to determine what’s right in their particular situation.