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What Effect Does Bankruptcy Have on Foreclosure?

On Behalf of | Mar 17, 2023 | Bankruptcy

Financial struggles cause millions of Americans stress and heartache. Suddenly, you may find yourself in an impossible situation, battling to maintain your financial stability. If you are considering bankruptcy, you may be worried about how it can impact your ability to keep your property. You may also wonder what effect it could have on a potential foreclosure.

At Telpner Peterson Law Firm, LLP, we want to help you understand your legal options when filing for bankruptcy and how filing may impact a foreclosure.

How Does Bankruptcy Effect a Foreclosure?

Deciding to file for bankruptcy is never easy. It is an emotional decision that requires people to examine the effects from all sides. There is a misconception that filing for bankruptcy can stop the bank from foreclosing on a property. However, that is only partially true.

Filing for bankruptcy can temporarily halt a financial institution from foreclosing on a home or property. However, how you file can significantly impact the result of a foreclosure.

The Differences Between Chapter 7 and Chapter 13

Chapter 7 bankruptcy is sometimes called a straight bankruptcy or a discharged bankruptcy. It is a relatively quick process that allows the person filing for bankruptcy to discharge certain debts. When someone files for Chapter 7 bankruptcy, the court orders an injunction, preventing a bank from foreclosing on a home if the foreclosure sale hasn’t already occurred.

However, Chapter 7 doesn’t prevent the bank from foreclosing permanently. Filing for Chapter 7 when you are behind on mortgage payments means there is the potential that the lender files a motion for relief from stay. When granted, a motion for relief from stay allows a financial institution to continue with foreclosure. Also, once the bankruptcy concludes, the lender can foreclose. Essentially, you can prevent the immediate foreclosure of a home, delaying the process for potentially a few months. Chapter 7 can disrupt the foreclosure process, but lenders can eventually foreclose if you are not making mortgage payments.

Chapter 13 bankruptcy is more of a restructuring. Resolving a Chapter 13 bankruptcy filing can take three to five years. Individuals must typically pay a percentage of the debt owed to certain creditors. For people wishing to remain in their homes, filing for Chapter 13 bankruptcy can stall the foreclosure process. Lenders may ask people behind on their mortgage to make a lump-sum payment to catch up on the past-due balance. This payment option is not feasible for many people.

Filing for Chapter 13 bankruptcy means you may be able to pay back the past due and current mortgage payments over the life of the Chapter 13 plan in more manageable monthly payment installments. If you keep up with the Chapter 13 payments, the financial institution cannot foreclose on your home or property for the life of the plan, again between three to five years. Complete the bankruptcy plan, and you can stop the foreclosure process on your home.

Is Bankruptcy Right for You?

Filing for bankruptcy can impact the foreclosure process. If you want to keep your home but are struggling financially, bankruptcy may be an option you and your family can explore. Filing for bankruptcy does not automatically mean you can stay in your home or keep your home free and clear. When you fall behind on mortgage payments, a lender has the right to recover financial losses. However, you also have legal options to halt or stop the foreclosure process, giving yourself time to get back on solid ground.

Contact a Trusted Bankruptcy Attorney Today

Are you concerned about filing for bankruptcy and how it may impact the foreclosure of your home? Discuss your situation with a knowledgeable and compassionate bankruptcy attorney today. At Telpner Peterson Law Firm, LLP, our team has protected the interests of their clients since 1952. We are committed to helping you understand your legal options and finding a solution that addresses your needs. Call our legal team today at 712-309-3738 to set up a confidential consultation.