Struggling to meet your monthly mortgage payments may put your home in danger of foreclosure. Fortunately, filing for bankruptcy may help your situation. Below we’ll examine how can bankruptcy stop foreclosure, as well as which type of bankruptcy you should file.
How Does Foreclosure Work?
Though constrained by state law, the process of foreclosure typically begins after you miss three or four mortgage payments. From there, your lender must follow your state’s foreclosure laws before selling your home at auction. In some states that means your lender must file a lawsuit for the remaining mortgage balance. Once obtaining judgement, your lender can take your home and sell it in order to apply the proceeds to your mortgage. If the profit surpass your mortgage, then your mortgage is effectively paid off; however, if not, then you may owe a “deficiency balance.”
This entire process does not happen overnight. While that happens, you may take alternative measures, such as a short sale, deed in lieu of foreclosure, or loan forbearance. If you’ve tried those alternative measures to no avail, then filing for bankruptcy may be your best option.
How Bankruptcy Stops Foreclosure
Once you file bankruptcy, the court will issue an injunction known as an “automatic stay.” Under this stay, your creditors must stop any of their debt collection methods immediately. This also means that your home is temporarily protected from foreclosure. You should take note that an automatic stay is only a temporary solution. While it will give you a little breathing room, you will still need to complete the bankruptcy process or settle your debts to stave off foreclosure permanently.
Can Chapter 7 Bankruptcy Permanently Stop Foreclosure?
If your home is scheduled for a foreclosure sale, filing for Chapter 7 will legally postpone the sale until your bankruptcy ends. However, you may still lose your home if your creditor files a motion to lift the bankruptcy, which they probably will do. Unfortunately, that won’t give you adequate time to come up with the funds in order to save your home.
In order to permanently stave off foreclosure, your best option is to file for Chapter 13 bankruptcy instead.
How Can Chapter 13 Bankruptcy Save Your Home?
With Chapter 13 bankruptcy, you can arrange to repay your “arrearage” (the total amount of your late payments) over a payment period spanning from three to five years. If you can afford to stay current on your mortgage payments while repaying your arrearage, then your home is saved from foreclosure.
If you took out a second of third mortgage on your home, then you may want to look into “lien stripping.” This process is only possible if your mortgage surpasses your home value. Because lien stripping re-categorizes additional mortgages as unsecured debt, you may not have to repay those mortgages in the end.
However, if your home’s value has increased, then you may be left with non-exempt equity. If this is your current situation, then you may not be eligible for lien stripping, and you may need to add that non-exempt equity to your payment plan. Though, a homestead exemption filing may avoid that trouble.
Contact a Lawyer that Knows How to Stop Foreclosure
Can bankruptcy stop foreclosure? In short, yes. However in order to permanently stop foreclosure you will need a knowledgeable bankruptcy lawyer on your side. Contact our seasoned legal team at Andrade Law Office LLC to learn how we can help you save your home.