If you’re facing foreclosure, you may be wondering, “Can bankruptcy stop the foreclosure of my home?” Filing for bankruptcy is a commonly used method to save a home from foreclosure. Filing for bankruptcy – and including the mortgage loan in your filing – will temporarily stop any foreclosure proceedings. After you file for bankruptcy, an “automatic stay” will go into effect immediately. This will prevent creditors, including your mortgage lender, from pursuing collection activities for as long as the automatic stay is in place. Your home cannot be sold at a county sheriff’s sale (or foreclosure auction) while the automatic stay is in place.
It’s important to understand that the bankruptcy filing will not stop the foreclosure completely – it simply puts the foreclosure process “on hold” while you use the federal legal system in defense against your creditors. If you decide not to follow-through with an actual bankruptcy court case (you are just filing the petition), then filing for bankruptcy will “buy you” about 60-90 days of time to save your home from foreclosure. If you can successfully sell your home during this 60-90 day time period (and generate enough income to pay-off the loan), then you may be able to avoid foreclosure. Filing a bankruptcy petition to save your home from foreclosure should be considered a “last resort” solution.
What happens to your home if you decide to move forward with a bankruptcy court case? In this situation, the outcome will depend on whether you filed for Chapter 7 or Chapter 13. In a Chapter 7 bankruptcy, you can typically discharge a mortgage; however, the bank will get to keep the home as satisfaction of the debt. In a Chapter 13 bankruptcy plan, you will follow a scheduled repayment plan to get caught up on your debts. Unfortunately, bankruptcy judges cannot lower mortgage balances or negotiate terms, so you will be required to pay back the total amount in arrears, plus continue making regular monthly mortgage payments. If you are able to make it through the 3-5 year bankruptcy repayment plan, then you will save your home and be current on the mortgage loan.
Remember that if you fall behind on making your payments (according to the bankruptcy plan), the bank will have the “automatic stay” lifted and your home will be put back into foreclosure. Before filing for bankruptcy to stop a foreclosure proceeding, consult with an experienced bankruptcy attorney. A bankruptcy attorney can assess your financial situation, and determine whether filing for bankruptcy would be advised to stop a foreclosure.