Can bankruptcy stop foreclosure? The short answer is yes, but only temporarily. There are different circumstances under which foreclosure proceedings are stopped depending on the type of bankruptcy you choose. A Paducah KY bankruptcy attorney can help you weigh your options and explore foreclosure defense strategies to protect your home. To learn more, contact Farmer & Wright, PLLC today.
Deciding Between Chapter 7 Bankruptcy and Chapter 13 Bankruptcy
Basically, under Chapter 7 you have to sell some of your assets to pay back your debts. The assets you have to sell depend on the exemptions (what you get to keep) in your state. Be sure you know what exemptions apply to you. Alternately, think of Chapter 13 as an opportunity to reorganize your finances and pay back your debt. It is very likely you will keep your house and have some of your debts dismissed.
It cannot be emphasized enough before you file for bankruptcy, you should understand all the ramifications of each option. Start by thinking about your financial situation. Here are a few questions to ask yourself.
- Have you already received a foreclosure notice from your bank or mortgage lender?
- Do you want to keep your house?
- Do you have other debts you will include in the bankruptcy? How much is your debt?
- Can you repay the amount of your mortgage in arrears (missed payments)?
Answering these questions can help you choose the type of bankruptcy to pursue. This is also a good time to consult a bankruptcy attorney, who can help you decide the best choice for you and will guide you through the bankruptcy process.
How Does Chapter 7 Stop Foreclosure?
Let’s be up front. If you file Chapter 7, it’s very likely you will lose your house. When you file for bankruptcy, the court will issue an automatic stay which temporarily prevents your lender from foreclosing on your house. If they try to proceed with the foreclosure while a stay is in place, they could be violating federal law.
There is a way your bank or mortgage lender can get around the stay. If the bank petitions the court to raise the stay, the court may grant their request and the foreclosure will go ahead. A bankruptcy attorney can contest lifting the stay and the court may decide to leave it in place. If the court does refuse to remove the stay, remember, it only stops the foreclosure during bankruptcy proceedings. It is possible you can use this time to negotiate with your bank to prevent the foreclosure after the stay is lifted. It is possible, but it doesn’t happen very often.
There is one possibility that may allow you to keep your house even under Chapter 7. If you filed bankruptcy before you received a foreclosure notice and your house doesn’t have sufficient equity to make it worth selling, you may be able to keep your home. If the court finds in your favor, any other debts you included in the bankruptcy will be discharged.
Is Chapter 13 a Better Option If I Want to Keep My House?
If you want to keep your house, but need time to catch up on payments, consider Chapter 13 bankruptcy protection. Even if you have been in foreclosure negotiations with your bank, you can file Chapter 13. The court will impose an automatic stay on the foreclosure and you’ll have time to reorganize your past due mortgage payments and any other debt.
You will propose a repayment plan to the bank for the amount of your mortgage in arrears. While you repay the amount in arrears, you have to make current mortgage payments. The repayment plan only applies to the past due amount. If you don’t pay your mortgage or fail to make the repayments, the court can dismiss your case and lift the stay.
You’ ll have three to five years to repay your debts. During the repayment period, you may only pay a portion of the other debts you owe. After the repayment period is over, the remaining debts will be dismissed.