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Can Bankruptcy Actually Help Me During a Foreclosure?

Foreclosure is a process that begins when a homeowner is unable to pay his or her mortgage and falls behind. The lender can use the foreclosure process to evict the home owner, sell the home and receive payment for the loan. Typically, this process will not begin until a homeowner has missed several months of mortgage payments. When you are faced with a foreclosure on your home, you may feel there is no way out. Surprisingly, bankruptcy can actually help you in a situation like this. Often, Chapter 7 bankruptcy can delay foreclosure while filing Chapter 13 bankruptcy could even save your home.

The Automatic Stay

When you file for Chapter 13 or Chapter 7 bankruptcy, the court will automatically issue an order for relief that includes an “automatic stay.” The automatic stay is a valuable order because it forces your creditors to cease all collection activities immediately. That means that if your home is scheduled for foreclosure sale, the sale will be automatically and legally postponed. Be aware that the lender can obtain the court’s permission to proceed with the sale. The automatic stay will also not work if the foreclosure notice is already filed. Despite these issues, bankruptcy can usually delay the sale of a foreclosed home for at least a few months.

Chapter 13 Bankruptcy and Foreclosure

Chapter 13 bankruptcy allows debtors to pay off the “arrearage,” or late unpaid payments, through a repayment plan. This type of plan can be up to five years. However, you will need enough income to meet your current mortgage payment as well as pay off the arrearage. This will help you avoid foreclosure and give you the ability to stay in your home.

Chapter 7 Bankruptcy and Foreclosure

Filing for Chapter 7 bankruptcy can, at the very least, stall the foreclosure sale of your home and give you two or three more months to negotiate with the lender. Throughout a Chapter 7 bankruptcy, you can live in the home for free while your bankruptcy is pending. Sometimes you can even stay in the home for several months after your bankruptcy case is closed. You can then use the money you have saved to help secure new housing. Chapter 7 bankruptcy is a popular choice because it cancels all debt secured by the home after the foreclosure. This includes the mortgage and home equity loans. While Chapter 7 bankruptcy will remove your personal liability, it does not remove the lien. This means that you will likely have to give up the house because it provided collateral for the initial mortgage loan. However, there are also ways to leverage your exemptions and equity as well as state laws regarding homesteads to allow you to keep your home. Your attorney can address these issues.

How an Attorney Can Help You in Foreclosure and Bankruptcy

If you are facing foreclosure or bankruptcy, let the team at the Oswalt Law Firm in Phoenix use our experience and knowledge to help you. We understand complicated bankruptcy law and can represent you so that you receive fair treatment. Call us today for more information.

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