When you're facing the involuntary loss of your home, you may wonder, "Can bankruptcy stop foreclosure?" Many struggling homeowners wonder the same thing, and start to consider taking this drastic financial step to save their homes. Recent bankruptcy laws have changed, making the answer to this question less obvious than it was before. While you should always consult with a bankruptcy attorney for legal advice regarding the status of your house if you file, here are the basics to help you decide what to do if you're considering taking this step.
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There are two types of personal bankruptcy: Chapter 7 and Chapter 13. Each one offers some protection from foreclosure, but to different degrees. Most personal bankruptcies fall under Chapter 7. People filing this type of bankruptcy are required to liquidate all their assets to pay back their creditors. Many people doing a Chapter 7 have no assets, and so their debts get legally eliminated.
If they DO have assets, but not enough to pay their creditors everything they owe, then the portion of debt not covered by their assets is eliminated. A Chapter 7 bankruptcy will temporarily stop a foreclosure, as creditors aren't allowed to take any adverse actions against you until the bankruptcy is discharged. After discharge, however, the foreclosure will likely proceed.
In a Chapter 13 bankruptcy, things are a little different. This type of filing is usually the choice of people with a lot of assets they want to protect. With Chapter 13, all of your debts, including your mortgage, are consolidated into one monthly payment that you make to the court. When the consolidated debt is paid off, you will no longer owe any money to any of your creditors. As long as you make your payments to the court on time each month, your mortgage lender can not foreclose on you. This makes Chapter 13 the choice of most people who are trying to use bankruptcy to stop foreclosure.
Your personal bankruptcy attorney will advise you of the best option in your own case. Each case is unique, and one size definitely does not fit all. In some cases, it might be in your best financial interest to let the foreclosure proceed. In other cases, you may not be able to afford the monthly payments to the court as long as your mortgage is included. If you're facing foreclosure, it may be to your advantage to file for bankruptcy to slow down the process and give yourself more time to make other living arrangements or to save up money for a move.
So, if you've asked yourself, "Can bankruptcy stop foreclosure?," the answer is "yes and no." It may not be the best option, but if you're facing the loss of your home, it's important to explore every possible angle for saving it. Bankruptcy may just be the thing that lets you stay in the home you've come to love.
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