Does Bankruptcy Stop Foreclosure?
Are you facing foreclosure? If so, you may be wondering whether filing for bankruptcy will stop your foreclosure proceeding. The short answer is yes – but there are some conditions that must be satisfied. Filing for bankruptcy is a commonly used tactic to save a home from foreclosure. However, it should be considered a “last resort” option—and only used when all other options have failed to stop the foreclosure proceeding.
Filing for bankruptcy, using a Bankruptcy Attorney – and including the mortgage loan in your petition – will temporarily stop any foreclosure proceedings or other collection efforts by your lender. The key word here is “temporarily.” After you file for bankruptcy, a federal relief order (known as an “automatic stay”) will go into effect immediately. This will prevent creditors, including your mortgage lender, from pursuing collection activities for as long as the automatic stay is in place. Your home cannot be sold at a county sheriff’s sale while the automatic stay is in place.
What happens to your house after the bankruptcy filing depends on whether you filed Chapter 7 or Chapter 13 bankruptcy. State rules for the two bankruptcy filings (Chapter 7 and Chapter 13) determine what property you get to keep under various circumstances. For example, a Chapter 7 bankruptcy will allow you to discharge most of your secured & unsecured debts, as long as creditors have access to the collateral for which the secured loan was guaranteed. This means that homeowners can discharge a mortgage under this filing – however, the bank will get to keep the home as satisfaction of the debt.
With a Chapter 13 bankruptcy filing, you will enter into a payment plan to get caught up on your debts. Unfortunately, bankruptcy judges do not have the authority to lower mortgage balances or negotiate payment terms, so you will have to pay back the total amount you’ve fallen behind as well as continue making regular monthly mortgage payments. For many borrowers, this can be very expensive. However, if you are able to make it through the 3-5 year bankruptcy repayment plan, then you will save your home and be current on the loan. Keep in mind that if you fall behind on making your payments (according to the bankruptcy plan), the bank will have the “automatic stay” lifted and your home will be put back into foreclosure. Neither bankruptcy filing will stop the foreclosure entirely — it only puts the process on hold while borrowers use the federal legal system in their defense against creditors.
Before filing for bankruptcy to stop a foreclosure proceeding, it’s a good idea to consult with a bankruptcy attorney. A bankruptcy attorney can assess your foreclosure situation, and determine whether filing for bankruptcy would be advised, and whether you should file a Chapter 7 or Chapter 13 bankruptcy proceeding.
Alternatively individuals can file bankruptcy without an attorney, which is called filing pro se. However, seeking the advice of a qualified attorney is strongly recommended because bankruptcy has long-term financial and legal outcomes.
Compare Debt Negotiation Vs Credit Counseling
If you’re struggling with debt, you have several options, aside from bankruptcy. Two options to consider include debt negotiation and credit counseling. Let’s begin by looking at debt negotiation. Your goal in debt negotiation is to work with your creditors to develop a repayment plan that works for both of you. Items under negotiation include the total amount due, the amount of repayment, the repayment period, the interest rate, and any penalties that have been added. Debt negotiation is focused only on developing a repayment plan for your debt. With debt negotiation, you will be doing all the negotiating yourself.
With credit counseling, you will be working an agency that will assist you with a wide variety of tasks, including debt negotiation, developing & maintaining a budget, developing financial management skills, and credit score improvement. Both credit counseling agencies and debt negotiation companies can help you avoid bankruptcy and manage your debt effectively.
Credit counseling agencies partner with major creditors to help you reduce interest, stop late payment fees, negotiation debt repayment, reduce monthly payments, and educate you on financial management. Your creditors work with consumer credit counselors because it is to their benefit to help you get out of debt. After making regular payments for a few months, your credit counseling agency can have your accounts re-aged and your credit file will show the new updates. This can help improve your credit history, and build decent credit ratings.
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Credit counseling is probably a better choice for people who need help with financial management, budgeting, and assistance in eliminating their debt. Debt negotiation is probably a better choice for people who have good negotiation and communication skills. If you already know about budgeting and managing personal finances, then you may be better off working with your creditors directly (on your own) to reduce your debt. One of the benefits of credit counseling is that companies are often more inclined to work with another company, than to deal with an individual debtor. Both solutions have pros and cons, so you will need to consider your skills, time commitment, and needs before deciding between the two.