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Sept. 26, 2017

If you are facing a potential foreclosure of your home, bankruptcy can help you bring the process to a halt, at least temporarily.

This depends on the form of bankruptcy under which you file.

The foreclosure process typically begins when you fall behind on your mortgage payments. At a certain point (usually after three or four months), your lender will act under the assumption that you are no longer able to meet your financial obligations, and then begin the process of selling your home at an auction. As part of this process, the lender will send notification of foreclosure to the homeowner.

Because the foreclosure process does not begin right away, you have some time to consider the various measures to help you avoid foreclosure, including a short sale, loan forbearance, a deed in lieu of foreclosure and bankruptcy.

In both Chapter 7 and Chapter 13 bankruptcy, the court will issue an order for relief that includes an automatic stay, forcing your creditors to halt all collection activities. For example, if your home is already scheduled for a foreclosure sale, that sale will be postponed so long as the bankruptcy is pending. This typically takes several months.

There are a couple exceptions:

A motion to lift the stay: A creditor may file a motion to lift the stay in the bankruptcy court, getting the court’s permission to proceed with the sale. Even if the lender succeeds in getting this stay, however, you will still have likely had at least a couple months’ delay you would not have had before.

A foreclosure notice has already been filed: An automatic stay will not halt the foreclosure process if the lender already filed the notice. Lenders must give homeowners several months’ notice of foreclosure sales. To that end, if you file for bankruptcy after already having received this notice, you cannot delay the sale.

Chapter 13 a better option for people hoping to keep their home while Chapter 7 bankruptcy does provide you with an automatic stay, Chapter 13 is ultimately the better option if you wish to keep your home in the long run. Under Chapter 13, you can pay off your late payments and other financial responsibilities over the course of a repayment plan, the length of which varies based on the types of debt and the total amount owed. If you make all the required payments on time, you will avoid foreclosure.

Chapter 13 bankruptcy may also help you avoid paying on your second or third mortgages. If the first mortgage is secured by your home’s whole value, you might not have any equity with which to secure the other mortgages you have. This would lead the bankruptcy court to categorize them as “unsecured” debts that can be wiped out in Chapter 13.

To learn more about how bankruptcy can help you avoid home foreclosure, contact a dedicated Texas attorney with Marcos D. Oliva, P.C.