Will Filing Bankruptcy Stop Foreclosure?
Posted on 13 February 2010 by Ted Agnick, The Lawyer
Yes, bankruptcy can stop a foreclosure sale! However, the answer to whether bankruptcy can permanently stop a foreclosure process depends upon your unique situation and whether you file a chapter 7 or chapter 13 bankruptcy.
Temporary Financial Set Backs
If you are behind on your home payments, you likely will fall into one of three situations. The first two involve you having fallen behind on your home payments due to a temporary economic set back. This means you missed some of your home payments but, are now able to make the payments. This could be due to an emergency medical situation or a temporary loss in your income. If the set back is temporary, you may find yourself in a position where you can begin making your regular home payments again but are unable to make up the arrearages, usually because it has grown to a large figure, for example, $10,000.
If You Can Make Your Mortgage Payment But Need Time To Pay Your Arrearages
The first situation occurs when you have recovered from the temporary economic set back and can begin making your regular monthly mortgage payment, but you need a brief period of time to recover so that you are able to pay your arrearages. Unfortunately, some banks may start foreclosure proceedings, unless you can pay them the arrrearages, which are $10,000 in the above example. If you cannot, the bank will proceed to foreclosure. So even though you can begin making your regular payments, you may find yourself in foreclosure proceedings.
A chapter 7 bankruptcy will temporarily stop a foreclosure proceeding or sale and may give you enough time to come up with the arrearages owed to the bank. You can typically get 45 to 65 days after filing chapter7 to pay the arrearages. This may become possible if you no longer have to pay your creditors because they will be wiped through bankruptcy.
If You Can Make Your Mortgage Payment But Cannot Pay Off Your Arrearages
The second situation applies if you can make your regular monthly payments but do not have the resources to come up with the arrearages in a brief period of time. For example, if you cannot come up with the total arrearages during the time frame allowed by a chapter 7, a chapter 13 may allow you to pay off the arrearages over a period of three to five years. For example, if you are behind $10,000, you could pay that over time, in monthly payments of as little as $166,67.
Permanent Financial Set Backs
The third situation is where you have fallen behind due to a permanent or long lasting economic set back and are unable to recover. This means you cannot currently make your regular monthly mortgage payment and have arrearages. In this situation, bankruptcy will not save your home. You will have to let the bank foreclose through the bankruptcy process. However the bankruptcy will eliminate any deficiency debt that arises from the foreclosure sale of your home and the resulting tax consequences that arise from a deficiency sale.
