Can Bankruptcy Stop Foreclosure?

If you’ve received a notice of foreclosure, filing for bankruptcy may give you the best chance at keeping your home or slowing down the foreclosure proceedings to get current on your home. Here’s what you need to know.

Automatic Stay

When you file for bankruptcy, an automatic stay is enacted and a freeze is placed on all collection efforts, including foreclosure. If a creditor tries to collect debts, repossess a car or foreclose on a property, they are violating federal laws and could face sanctions. However, an automatic stay only lasts for a certain amount of time, depending on which type of bankruptcy you file.

Chapter 7 Bankruptcy & Foreclosure

Unfortunately, a Chapter 7 bankruptcy typically means you will ultimately end up losing your house as a consumer. The only way you can keep your home is by getting current on your mortgage, but people that usually file for Chapter 7 cannot do that. The good news is that filing for Chapter 7 before the foreclosure allows you to keep it off your credit, and any potential deficiency balances from the foreclosure are wiped out. In addition, filing for Chapter 7 bankruptcy makes the foreclosure process start back over, giving you another three months or longer in the house. You can use this time to live there mortgage-free and save money for your next place. Chapter 7 bankruptcy will wipe out most unsecured debt from an individual or business, such as credit cards, medical bills and personal loans. Under extremely rare circumstances, the bank may be willing to work something out with you in order to keep your home, but it doesn’t happen very often.

Chapter 13 Bankruptcy & Foreclosure

On the other hand, if you want to keep your house and get on a repayment plan, Chapter 13 bankruptcy might just be for you. This type of bankruptcy reorganizes your debts and allows you to get assistance on paying back what you owe on your house. Typically, repayment plans last roughly 5 years, allowing you to make low monthly payments on your home and a portion of unsecured debts. At the end of Chapter 13, you could potentially save your home and pay back your unsecured debts.

If you’re facing foreclosure or are considering filing for bankruptcy, contact our Colorado bankruptcy lawyers at Jorgensen, Brownell & Pepin, P.C. today. Call (720) 491-3117 or contact us online for more information about our services.