How can bankruptcy stop foreclosure? Lately, we’ve been hearing a lot on the evening news about sky-high foreclosure rates, and for good reason.
… Did You Know …
- every 13 seconds another home enters foreclosure in this country, according to the Center for Responsible Lending (CRL)?
- nearly 1.2 million properties received foreclosure filings in the first half of 2011;?
- according to RealtyTrac, 1 in every 563 American homes received foreclosure notices in October, 2011 alone.
And, financial experts say this trend is not going to improve much in the near future. People just like you and I are facing foreclosure and/or bankruptcy every day!
These numbers aren’t just about physical houses going back to the bank – they aren’t just statistics that prove a suffering economy.
These figures are staggering and they represent real families whose lives have been torn apart. This is not just about foreclosure vs. Bankruptcy, but also about making a decision that could save your home.
There are many reasons why a family can fall behind on their bills and enter foreclosure, but outside factors can also affect the number of foreclosures, ability to repay a mortgage, etc. Some of the outside influences include:
Every 13 seconds another home enters foreclosure!
- Banks giving out bad home loans
- The collapse of the housing market
- The high unemployment rate
- People losing savings in the stock market
- Unethical Wall Street trading practices
Whichever the reason, some people are finding relief and saving their homes by filing bankruptcy.
Bankruptcy Was Designed to Resolve Debt & Protect Property
When the U.S. Bankruptcy Code was crafted, it was intended to do two things: resolve debt and protect property.
How Exactly Can Bankruptcy Stop Foreclosure?
Fortunately, the Code also has provisions that can protect a filer’s property.
When you file a bankruptcy petition, the court will issue an “automatic stay” that will halt foreclosure proceedings immediately. This means that lenders can take no further action against you until the court gives them permission, or until the terms of the bankruptcy have been determined. This order is legally binding and can:
- PROHIBIT Creditor Contact (no more phone calls or collection letters!)
- STOP Foreclosure
- PREVENT Repossession
- STOP Utility Shutoffs
- HALT Lawsuits & Wage Garnishments
Can Bankruptcy Stop Foreclosure: Chapter 7 vs Chapter 13
Chapter 7 bankruptcy will delay foreclosure, but if you have no way to get current on delinquent payments, then you may end up losing your home anyway.
If you have a large amount of unsecured debt, a Chapter 7 filing may free up enough money from your monthly budget that you are able to catch up on your mortgage payments and continue making these payments in the future. Or, putting the foreclosure on temporary “hold” could give you the time to make arrangements with another lender, especially if you have a lot of equity in your home
However, if you are significantly in arrears, then a Chapter 13 filing is probably your best option for protecting your home from foreclosure. Because this option allows you to restructure unsecured debt, you can pay off the arrears over the length of the payment plan and work on repairing your finances.
You will still need to keep making your current mortgage payment, so your restructured finances must be able to support making your mortgage payment while also catching up on any past-due amounts.
If your current income is not sufficient to maintain both your home and your Chapter 13 repayment plan, then bankruptcy may not protect you from foreclosure.
A chapter 13 bankruptcy is usually better than a chapter 7 filing if you want to keep your property, but it is recommended that you get legal advice. Experts who are trained in this field will be able to look at your financial situation and determine your best plan of action.
Find out how the Bankruptcy Means Test works.
If you aren’t sure, here are tips on how to avoid bankruptcy.
Go to the Bankruptcy Facts article list.
Reread Can Bankruptcy Stop Foreclosure.