Foreclosure and Bankruptcy

One of the main concerns of any homeowner is foreclosure of his or her primary home. Foreclosure is normally the course of action taken by lenders when you fall behind on your mortgage payments. Foreclosing the mortgage means the property is sold to pay off the loan taken against it. The usual option taken by home owners to avoid foreclosure is to apply for forbearance from the lender. But if forbearance is not possible for any reason, the other option would be to file for bankruptcy protection.

Can bankruptcy fend off foreclosure?

The good news is that bankruptcy can stall foreclosure for several months, giving you time to hammer out a solution with your lender that could save your home. If foreclosure proceedings have begun, bankruptcy can postpone the proceedings until the bankruptcy is completed. This happens because of the automatic stay against creditors that comes when you successfully file for bankruptcy. Automatic stay means all your creditors are ordered by the bankruptcy court to cease collection efforts from you. As such, the foreclosure process can be affected by bankruptcy but the outcome may depend on which chapter is filed.

If you file for Chapter 13 bankruptcy, all your debts (including your mortgage) will be listed together and restructured to enable you to pay them off over a period of time according to a set payment schedule. If you have a second or third mortgage, Chapter 13 bankruptcy may list them as an unsecured debt since your first mortgage is secured to the value of the home. This may eliminate the second and third mortgages on your home. The same applies if a lien is filed against your home. Filing for Chapter 13 bankruptcy may remove the lien also. All you have to do is keep up with payments towards your debts according to the payment plan in your Chapter 13 bankruptcy.

On the other hand, if you file for Chapter 7 bankruptcy, it would entail selling off your non-exempt assets to repay your debts. Your primary home is usually exempted from being liquidated. Thus, your mortgage debt that is secured by your home may be cancelled after all your non-exempt properties have been liquidated.

For a more detailed discussion on how bankruptcy can fend off foreclosure of your home, call us at (813) 200 4133 for a free consultation.

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