Can bankruptcy stop foreclosure and help you to save your home? The answer to this question depends on your circumstances and how far into the foreclosure proceedings you are. For many, bankruptcy can temporarily stop the foreclosure process.
Can Bankruptcy Stop Foreclosure for You
Foreclosure is a process in which the lender works to obtain legal full ownership of a property. Most lenders do not want to own property and therefore may work with homeowners to help them to stay in their homes. If the homeowner defaults on their home loan and no solution is available to get them current, the lender is likely to foreclose on the property.
The foreclosure process may last as long as six months. During that time, the homeowner has various opportunities to try and work out a plan with their lenders. There are several ways to work through a foreclosure and avoid losing your home or filing bankruptcy.
- Making Home Affordable: The federal program, Making Home Affordable is designed to help individuals to work with lenders to restructure loans to avoid foreclosure.
- FHA and VA Loans: Those with FHA or VA home loans can get help through those organizations as well. The U.S. Department of Housing and Urban Development provides information and resources on how to make that work.
Before filing bankruptcy, determine if these programs, or simply working with your lender, can offer a solution to avoid bankruptcy. In many situations, getting into these programs will stop the foreclosure process.
When Foreclosure Seems Inevitable
If you have been unable to save your home through any of these programs, bankruptcy may be an option to stopping the foreclosure process, but only temporarily. There are two main forms of bankruptcy available to the consumer.
Chapter 7 Bankruptcy: In Chapter 7 bankruptcy, all debts are discharged and assets -including homes- may be sold to repay debts. Most states do have homestead exemptions which help you to stay in your home as long as you can continue to make mortgage payments and do not have too much equity in your home.
Chapter 13 Bankruptcy: Another option is Chapter 13, which may be a better option for those who need help with their mortgage payments. When you file Chapter 13, you do not liquidate all of your debt. Rather, the debt is restructured to make it more affordable for you to pay. Each lender must work with you to find a way to alter what you owe to make it easier for you to repay the loan. Some debt obligations may be reduced, such as credit cards. Mortgage debt is likely to be reorganized so you can make lower monthly payments.
In either of these options, filing bankruptcy will immediately stop the foreclosure proceedings, but only long enough to determine if a solution can be found. In Chapter 7, you will only be able to remain in your mortgage if you can continue to make monthly payments according to the agreement. This may not be possible and in that case, the foreclosure process will go forward.
Can bankruptcy stop foreclosure from happening to you? The best way to find out is to work with a bankruptcy attorney.
- State Laws: State laws on bankruptcy will determine if your home can be saved through bankruptcy. There are limitations in many states that need to be taken into consideration.
- Bankruptcy Proceedings: Consumers must attend financial management training and, in some cases, work with a credit counselor to get debt under control before they can file bankruptcy. It is important to note that in some cases, it will be impossible to save your home from foreclosure.
- Time Limitations: Filing bankruptcy can take some time. If the foreclosure process is too far advanced, such as if the court has already ordered the transfer of the deed of the property to the lender, it may be impossible for even bankruptcy to stop the foreclosure process.