Can bankruptcy stop a foreclosure?

On Behalf of | Jul 12, 2023 | Bankruptcy

If you get a foreclosure notice, you’ll likely begin looking into ways to save your home. Foreclosure isn’t instantaneous, so it’s not as if you have to move out the same day that you receive notice of your lender’s intentions. But you’re still probably going to be interested in long-term solutions that may resolve your financial troubles and put an end to the foreclosure.

One way to potentially save your home from foreclosure involves filing for bankruptcy. If you do so, it creates an automatic stay on most other court cases and collection actions proceeding against you. Until your bankruptcy case is complete, the court will not move forward with your foreclosure case. If the bankruptcy takes six months, the automatic stay will buy you an extra six months of time. Some bankruptcy cases even buy homeowners years of time.

Can you stop the foreclosure permanently?

The downside of the automatic stay is that it does expire. Once a bankruptcy case has concluded, the foreclosure can proceed again. So, this isn’t a permanent solution and you should never assume that filing for bankruptcy means you get to keep your home forever. But bankruptcy can still make that ultimate goal possible.

For instance, say that you file for Chapter 13 bankruptcy. This effort will result in a repayment plan. You will make one monthly payment to a trustee who is in charge of your case, and you slowly pay off the debt that you owe. This can take place over 3 to 5 years, so a big part of this approach is that it can spread your outstanding balances out. If you simply can’t afford to make all the payments you owe at one time, you may easily be able to do so over three years.

Ideally, organizing your debt into a repayment plan like this will also make it possible for you to make your mortgage payments once again. Your lender would certainly rather have you make those back payments and get current again over time, as opposed to foreclosing on your home and having to sell it entirely. As a result, rearranging your debt via a Chapter 13 case may be all that you need to do to set yourself on the right path toward keeping your home long-term.

While filing for bankruptcy isn’t the best solution for every distressed homeowner, seeking legal guidance to explore this option may help to inform whatever pathway forward is right for you.