Bankruptcy can significantly impact the foreclosure process on a home, offering homeowners a potential means to delay or even prevent the loss of their property. Understanding how bankruptcy intersects with foreclosure is crucial for homeowners considering this option.
The type of bankruptcy filed, Chapter 7 or Chapter 13, determines how the foreclosure process will be affected. Each type has different implications for handling debts and assets, including the home.
Chapter 7 bankruptcy and foreclosure
In a Chapter 7 bankruptcy, assets are sold off to pay creditors. However, a primary residence may be exempt from liquidation. While Chapter 7 can temporarily stop a foreclosure due to the automatic stay, the lender can resume foreclosure proceedings if the mortgage remains in default after the automatic stay is lifted.
Chapter 13 bankruptcy and foreclosure
Chapter 13 bankruptcy, often seen as more favorable for homeowners facing foreclosure, involves a debt repayment plan. The homeowner can propose a plan to repay mortgage arrears over time while continuing to make current mortgage payments.
It can provide a way to catch up on missed payments and potentially keep the home. The repayment plan typically lasts three to five years, during which the lender is usually prohibited from proceeding with foreclosure as long as the homeowner adheres to the terms of the plan.
The decision to file bankruptcy should be made after considering all aspects of the current financial situation. How it impacts foreclosure may be one of these. Anyone considering this option should ensure they work with someone familiar with the process so they can make decisions in their best interests.