Homeowners who are facing foreclosure ask the question –Does bankruptcy stop foreclosure? Filing bankruptcy prevents your lender from enforcing your mortgage provisions against you, and stops the proceedings. The stoppage could be temporary if your lender is successful in getting the court’s permission to continue collection proceedings against you. During a Chapter 7 proceeding, bankruptcy can stop foreclosure, as long as you keep your mortgage payments current. A Chapter 13 bankruptcy also stops the foreclosure proceedings if you agree to enter into a payment plan with your lender, subject to court approval, and continue making payments on time during the payment period. Generally, the payment plan is for 3-5 years. If you fall behind on your payments, the lender can continue foreclosure proceedings and sell your home at a foreclosure auction. So you should make sure you can afford to make the payments before you make such a commitment.
Pros and Cons
If you are thinking about filing bankruptcy just to stop a foreclosure proceeding, there may be other options that you should look into such as:
- Loan modification
- Refinancing
- Short Sale
- Selling the property if there is equity
- Deed in Lieu
- Reinstatement
- Forbearance
A bankruptcy is a serious matter, and should only be used if there are no other alternatives to prevent foreclosure. If you do have substantial assets, you may want to think about selling some of them to pay off your mortgage debt and avoid foreclosure and bankruptcy. Also, if you have equity in your home, you may need to sell it. It is important that you speak with an attorney before you make any decisions.
The pros and cons of filing bankruptcy to avoid foreclosure:
- Bankruptcy stops your lender from continuing foreclosure proceedings against you during the bankruptcy proceedings.
- Bankruptcy allows you to keep your home if you keep your mortgage payments current.
- If you cannot afford to keep your home and your lender forecloses, bankruptcy wipes out any deficiency judgments (lender seeks judgment against you for difference in sale proceeds and what you owe the lender on your mortgage).
- Lenders are more apt to give you a new mortgage sooner if you had a bankruptcy than a foreclosure.
- The disadvantage is if you miss a payment on your mortgage, your lender can foreclosure. You would then have both a foreclosure and a bankruptcy on your credit report.
- Foreclosure stays on your credit 7 years, bankruptcy stays on your credit 10 years.
- If you have substantial assets, you won’t be able to keep them in a bankruptcy.
Benefits of Speaking to an Attorney
Before you make a final decision to file bankruptcy to avoid a foreclosure, speak with a real estate foreclosure defense attorney and/or bankruptcy attorney to make sure that is the best option for you. An attorney can defend you in a foreclosure and bankruptcy action, and negotiate with your lender at the same time.
