“`html

Can Bankruptcy Stop Foreclosure?

Filing for bankruptcy is a challenging decision, but it may be a necessary step to prevent losing your home to foreclosure. Understanding how bankruptcy can impact foreclosure is crucial. Here, we break down the details to help you make an informed decision.

Can Bankruptcy Stop Foreclosure?

Yes, bankruptcy can temporarily halt foreclosure. When you file for bankruptcy, mortgage lenders are prohibited from initiating or continuing foreclosure proceedings until your bankruptcy case is resolved. The type of bankruptcy you file—Chapter 7 or Chapter 13—will determine whether foreclosure is paused or avoided altogether.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, can temporarily stop foreclosure. However, it often cannot prevent it entirely. This type of bankruptcy is for individuals with earnings below the median income. Debtors must forfeit non-exempt assets, which are sold to pay creditors. Once this process is complete, the mortgage lender can resume foreclosure unless you can make up missed payments and continue regular mortgage payments.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy can halt foreclosure and potentially help you avoid it altogether. If you have sufficient income, a court-appointed trustee will work with you and your creditors on a repayment plan lasting three to five years. If you can keep up with regular mortgage payments and the repayment plan, you may restore your home loan to good standing and avoid foreclosure permanently.

What Is an Automatic Stay?

An automatic stay is a ban triggered by a bankruptcy filing that prevents creditors from collecting debts, including through foreclosure. This stay gives you time to make delinquent payments or arrange alternative housing.

Duration of the Automatic Stay

The duration of an automatic stay varies but typically lasts as long as your Chapter 7 case is pending or until the repayment plan in a Chapter 13 case is finalized. For Chapter 7, this could be four to six months. For Chapter 13, it could last three to five years.

Can Lenders Remove the Automatic Stay?

In some cases, lenders can petition the court to lift the automatic stay. This may happen if the debtor has no equity in the home, or if a prior bankruptcy case was dismissed within the past year.

Impact on Credit: Bankruptcy vs. Foreclosure

Both bankruptcy and foreclosure negatively impact your credit. Chapter 7 bankruptcy remains on your credit report for 10 years, while Chapter 13 bankruptcy and foreclosure stay for up to seven years. The negative effects lessen over time but can be severe initially.

Alternative Ways to Stop Foreclosure

Before considering bankruptcy, explore these alternatives:

Mortgage Forbearance

If you face a temporary financial setback, mortgage forbearance can buy you time to get back on track. You’ll need to show you can resume regular payments after the forbearance period and make up missed payments within a short time.

Sell the House

If you can’t keep up with mortgage payments, selling your house before foreclosure may be an option. If the market value is higher than your mortgage balance, you can use the proceeds to settle the mortgage and secure new housing.

Deed in Lieu of Foreclosure

In a deed in lieu transaction, you vacate your house by an agreed-upon date, avoiding the expense and stress of foreclosure or bankruptcy. The lender may even provide a “cash for keys” stipend to help you relocate.

The Bottom Line

While bankruptcy can halt foreclosure temporarily, its severe credit consequences make it a last-resort option. If overwhelmed with debt, Chapter 7 can give you time to find new housing, while Chapter 13 may help you get back on track with your mortgage and avoid foreclosure altogether.

For any mortgage service needs, contact O1ne Mortgage at 213-732-3074. We’re here to help you navigate your options and find the best solution for your situation.

“`