File bankruptcy to stop a foreclosure.

An option to stop a foreclosure is to file for bankruptcy. Taking this step could automatically delay or stop  your foreclosure and also cancel your debts, or if not cancel them, then it will allow you to repay them over a long period of time. Granted taking this step will hurt your credit scores, you will be able to rebuild your credit scores faster if you have a clean slate to work from.

While the foreclosure process will typically be initiated by your lender only after you fall behind on your payments for at least two months, and usually longer, such as three or four months, during this timeframe you need to review all your options. This time provides you an opportunity to try some alternate measures to save your home, such as a short sale, loan forbearance, or possible even a deed in lieu of foreclosure.

After you have tried and not have had success with these different options, it may be the time to consider filing for bankruptcy as a possibility for stopping or delaying the foreclosure. Below are some details on what this option involves.

Bankruptcy delays foreclosure.

If you do go ahead and file either a Chapter 7 or Chapter 13 bankruptcy, the bankruptcy court will automatically issue an order that is known as the Order for Relief. This creates what is known as an "automatic stay." This automatic makes your lenders and creditors immediately stop their collection activities.  So, what this means for a foreclosure is that if your home is currently scheduled for a foreclosure sale, the sale of your home will be legally postponed while the bankruptcy filing is pending. The delay can last from 3-4 months. However, be aware of two possible exceptions.

Exception number one is motion to lift the stay. If the bank or lender obtains the bankruptcy court's permission to go ahead with the same of the home (which can happen by filing a "motion to lift the stay"), it is possible that you may not get a full delay in the process of three to four months. But even in these cases, the bankruptcy court judge will often still postpone the sale of your home by at least two months. Sometimes the delay can even be longer than  the t months if the creditor is slow in pursuing the motion that would in effect lift the automatic stay filing.

Second is if the foreclosure notice is already filed. Another exception is bankruptcy's automatic stay won't stop the clock on the advance notice that more and more states are now requiring before a foreclosure sale can proceed, or a motion to lift the stay can be filed. While this may sound complicated, it isn’t. To provide an example, say a homeowner in California is behind on their mortgage payments, a bank or lender needs to give the homeowner at least three months' notice of a foreclosure filing according to state law. Say you receive that three-month notice of default, and then say for example you file for bankruptcy after two of the months have passed. In this case, the three-month period would end after you have been in the bankruptcy stages for only one month. So after that time the bank or lender could file a motion to lift the stay and they could then proceed to as ask the court for permission to schedule the home go thru the foreclosure sale.

 

 

 

Stop foreclosure from chapter 13 bankruptcy

If you have tried all other options, such as state mortgage assistance programs, loan modifications, short sales, and more with no luck, the only other way to keep your home and stop a foreclosure is to file a Chapter 13 bankruptcy.

How does chapter 13 work. What it does is it lets you pay off the "arrearage" on your loan (which is late, unpaid mortgage payments) over the length of a repayment plan that you will be able to propose. It can be as long as five years in certain cases. However, the court will require that you have enough income to at least continue to pay your current monthly mortgage payment at the same time that you have agreed to  pay off the arrearage. So this bus you time. If you assume you will make all the required mortgage payments up to the end of the agreed upon repayment plan, you will then prevent a foreclosure and you will be able to keep your home.

In addition, a Chapter 13 bankruptcy filing may also allow you to eliminate the payments you were previously required to make on your second or third mortgage. The reason being if your first mortgage is now secured by the entire value of your home you probably do not have any equity left in the home (as many home values have dropped) with which to secure the later mortgages. Therefore, chapter 13 will get rid of your second or third mortgages.

Chapter 7 cancels debt. Also, a chapter 7 bankruptcy filing will also cancel all the unpaid debt that is secured by your home. Everything is canceled the mortgage, home equity loans, and second or third mortgages.

How to file a chapter 7 bankruptcy. There are a few different methods. You can want to speak to a credit counseling agency for free advice on the process. Click here to learn more and find some nation non-profits.

 

 

Chapter 7 won’t stop a foreclosure

While it does cancel your debt per above, the foreclosure will not be stopped. Why this works is because when you purchased your home you more than likely signed at least two documents. Two of them would have included  a promissory note that stated you promise to repay the mortgage, and a second document which is known as a security agreement, and it could be recorded as a lien which ensures you follow the promissory note and agree to its terms.

So, what in effect happens is that a chapter 7 bankruptcy filing will get rid of your personal liability under the promissory note, however it does not remove the lien. So a chapter 7 bankruptcy filing in effect gets rid of unpaid debt and loans, but not any liens associated with them. So you will probably still have to give up the house to the foreclosure filing.