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How may bankruptcy prevent foreclosure?

On Behalf of | Jul 17, 2023 | BANKRUPTCY LAW - Bankruptcy |

Financial problems are the last thing you need when you are trying to keep up a mortgage. However, if you fear your bank will take away your home due to missed mortgage payments, bankruptcy could be an option to prevent foreclosure.

Bankruptcy does not guarantee that your bank will not foreclose on your property, but it does provide valuable tools that may help you avoid this outcome.

The automatic stay

After you file for bankruptcy, a judge will grant an automatic stay. This is a court order that stops creditors from pursuing collection efforts against you, which includes foreclosure payments. Your bank also cannot continue foreclosure on your home.

An automatic stay may last for as long as your bankruptcy does. During this time, you can consider options to revitalize your financial situation and get back on track with paying your mortgage.

The Chapter 13 repayment plan

The kind of bankruptcy you file will help determine whether or not you can prevent foreclosure. Chapter 7 bankruptcy may cancel the debt you owe your bank, but it does not remove the foreclosure itself. Your lender can still take your home as collateral.

By contrast, filing for Chapter 13 bankruptcy lets you create a repayment plan to pay at least some of your debt. This plan can include delinquent mortgage payments. Completing your missed amounts might be enough to satisfy your lender and stop foreclosure from happening.

Even though bankruptcy is not always enough to avoid foreclosure, it can at least clear away your debts and give you the foundation to rebuild your finances and buy another home someday. This makes bankruptcy worth considering if no other options seem viable.