How To Prevent and Stop Foreclosure Through Bankruptcy

Missing mortgage payments and facing foreclosure on your home can be a terrifying experience. You may think there’s absolutely no way out.

Fortunately, you can prevent and stop foreclosure through bankruptcy. Filing for bankruptcy can pause the foreclosure process and possibly keep you from losing your home.

While it won’t wipe out your mortgage debt, it can help clear other debts so you can afford your mortgage payments again.

Foreclosure Versus Bankruptcy

Because both foreclosure and bankruptcy are related to situations where debt has become insurmountable, it can be easy to confuse them. But they are different. Foreclosure ultimately results in the loss of your home, while bankruptcy, despite the myths around it, gives you a chance to start new without losing everything you have.

Here’s how it works:

When you apply for a mortgage loan, you offer up your home as collateral. That means that if you fail to make payments on your mortgage for several months, the lender (usually the bank) has the right to start foreclosure proceedings. These can include taking your home and selling it to repay the mortgage loan.

One of the best ways to get protection from home foreclosure is to start the bankruptcy process as soon as your lender or mortgage servicer starts the foreclosure process.

Simply put, bankruptcy is a legal tool you can use to wipe out certain debts and get debt relief. Bankruptcy can restructure your debts so the payment becomes more manageable.

You Can Prevent and Stop Foreclosure Through Bankruptcy

It’s important to understand how different kinds of bankruptcy can (and cannot) help with foreclosure. Chapter 7 and Chapter 13 bankruptcy are the most common and well-known types of bankruptcy, so we’ll look at those here.

In the case of Chapter 7 bankruptcy, once you file, an automatic stay goes into effect. This stops creditors from collecting on your debts. Once the bankruptcy process is complete, the debts that qualify to be discharged through bankruptcy can be eliminated. Bankruptcy exemptions allow you to keep most of your personal assets, including your car.

Mortgage debt, however, is not one of the debts you can eliminate through Chapter 7 bankruptcy. Thus, you can still lose your home. At best, Chapter 7 will just buy you  time to try to catch up with your mortgage payments or work out a loan modification with your lender. A Chapter 7 Trustee may also attempt to sell your house if your home has more equity than you are permitted to exempt (protect) under applicable law.

Chapter 13 Bankruptcy Is One of the Best Ways to Avoid Home Foreclosure

Like Chapter 7, Chapter 13 bankruptcy is a way to discharge your debts. And in both cases, an automatic stay goes into effect once you file so that your lender cannot collect.

Chapter 13 differs from Chapter 7, however, in that it restructures your debt into a payment plan that you pay off in three to five years. You’re assigned a bankruptcy trustee who distributes the money you’re paying under this plan to your creditors. In Chapter 13 you retain all of your assets no matter how much equity you have.

To be eligible for Chapter 13 bankruptcy, you have to show proof that you can cover these payments. Then you have three to five years to catch up on your debts. What’s more, while your case is pending, the mortgage company can’t foreclose as long as you continue to pay your mortgage payments and/or the Chapter 13 plan payments. You can also consider starting or continuing any loan modification program your lender might offer during this time.

So Chapter 13 is frequently the best bankruptcy option for fighting foreclosure. 

Get Help From Bankruptcy Experts

Dealing with a potential foreclosure can be extremely stressful.

The experienced bankruptcy attorneys at Gold, Lange, Majoros, and Smalarz are here to help you understand how to prevent and stop foreclosure through bankruptcy.

So don’t hesitate to contact us today to explore how a Chapter 13 bankruptcy can help you keep your home.