If you are behind on your mortgage payments, you may be considering filing for bankruptcy. But can bankruptcy stop foreclosure? The answer is yes. In most cases, you can avoid or delay the bank’s foreclosure of your home by filing for bankruptcy.
Are You Facing Foreclosure?
If you’ve fallen months behind on your mortgage payments, your bank might initiate the foreclosure process. Most banks will not be willing to work out an alternate arrangement such a short sale or loan modification with you. They will seek to repossess your home and sell it at auction. The auction proceeds are then used to repay the mortgage and any legal expenses.
The foreclosure process is a long one. Typically, banks will not begin foreclosure until after you’ve missed more than three or four payments. This gives you time to think about loan forbearance, short sale, or deed in lieu of foreclosure.
But if these alternatives won’t work for you, you should think about bankruptcy. Filing for Chapter 7 bankruptcy can delay foreclosure for a few months. Filing for Chapter 13 bankruptcy can help you avoid foreclosure altogether.
How Do You Delay Foreclosure?
The court will automatically issue an Order for Relief when you file for bankruptcy. The order includes an “automatic stay” that tells your bank and other creditors to stop collecting on your debts.
If the bank already scheduled an auction of your home, the order will postpone the sale until your bankruptcy is finalized. This delay can last three to four months, unless the bank is successful in persuading the court to lift the automatic stay. If so, you will still have a delay of at least two months.
The three or four month delay will also be shortened if your bank files a foreclosure notice before you file for bankruptcy. In this case, an automatic stay you might be granted will not stop the clock on the foreclosure and auction of your home.
How Can Chapter 13 Bankruptcy Help?
If you want to keep your home but find yourself behind on your mortgage payments with no possible means of making up what you owe the bank, you should file for Chapter 13 bankruptcy. This way, you will be allowed to pay off the late unpaid payments over a period you propose in a Chapter 13 repayment plan.
Chapter 13 bankruptcy is only feasible if you have enough money to pay both your past due balance as well as your current mortgage payments at the same time. It is also useful to get rid of payments on second or third mortgages. This is possible if your home has dropped in value since you bought it and your equity is only enough to secure your first mortgage.
How Can Chapter 7 Bankruptcy Help?
Chapter 7 bankruptcy can help you by forgiving any debt you have that is secured by your home, including mortgages. However, it does not lift the foreclosure action that the bank has taken against you. So, you could still lose your home. You could also lose other valuable possessions that can be sold to make your bank whole again from their loss.
In addition, Chapter 7 bankruptcy is limited to those whose average gross income for the six-month period before the bankruptcy filing does not exceed the state median income for the same sized household. It is not an option for you if your income is enough to pay for your living expenses and a reasonable Chapter 13 repayment plan.
Why Should You Consider Bankruptcy?
If the bank proceeds with foreclosure and you do not file for bankruptcy, you will not only damage your credit but will also have to keep making mortgage payments. Filing for bankruptcy gives you the option of a fresh start. It does temporarily damage your credit score. But it also gives you a chance to rebuild your credit, save money, and get back on your feet sooner.
Contact an Omaha Bankruptcy Attorney Today
If you are facing foreclosure, talk to an experienced bankruptcy attorney. We can help you determine whether filing is a good option for you. Burke Smith Law can help you secure your financial future and possibly keep your home.