Can Bankruptcy Stop Foreclosure?
Many consumers who are considering the possibility of filing for bankruptcy in South Florida are also struggling to pay the mortgage and are facing the threat of foreclosure. As such, homeowners who are thinking about Chapter 7 or Chapter 13 bankruptcy often want to know if bankruptcy has the ability to stop a foreclosure from happening. The short answer is yes, but the way in which a bankruptcy filing can stop a foreclosure, as well as whether the homeowner can ultimately remain in the home, will depend upon the type of bankruptcy. Our West Palm Beach bankruptcy lawyers can explain in more detail.
Automatic Stay Initially Halts Foreclosure Proceedings
When a debtor files for bankruptcy, something known as the automatic stay attaches, and creditors are prevented from taking any further action against the debtor in order to obtain any money the debtor owes. The automatic stay stops creditors from filing lawsuits against debtors, moving forward with existing lawsuits against debtors, seeking to enforce existing judgments, or even continuing to make calls to collect on existing debt. The automatic stay prevents debt collection actions as soon as the debtor files a bankruptcy petition.
Since the automatic stay stops any additional actions to collect on debt owed, it also halts foreclosure proceedings. What this means is that, if you have received an initial foreclosure notice, no additional steps will be taken to move forward on the foreclosure. Even if the foreclosure process is farther along, and a foreclosure sale has been scheduled, the automatic stay will halt additional foreclosure actions. You should know that U.S. bankruptcy law does allow the lender to file a motion to ask the court to lift the automatic stay so that the foreclosure process can move forward. However, it is not the norm for bankruptcy courts to lift the automatic stay. If you have questions or concerns, you should get in touch with a bankruptcy attorney.
How the Automatic Stay Ultimately Affects the Outcome of the Foreclosure Will Depend Upon the Type of Bankruptcy
Depending upon the type of bankruptcy protection you seek, the automatic stay can sometimes allow you to get caught up on mortgage payments and remain in your home (avoiding foreclosure altogether), but in other cases, the automatic stay is only a temporary halt on the foreclosure process.
With Chapter 13 bankruptcy, given that it is a type of reorganization bankruptcy, a homeowner can use the repayment plan to catch up on mortgage payments they owe and can remain in the home. The automatic stay stops the foreclosure until the repayment plan can be approved and the debtor can move forward. In fact, a common reason that debtors want to file for Chapter 13 bankruptcy is to avoid foreclosure altogether, remain in the home, and get caught up on mortgage payments.
With Chapter 7 bankruptcy, the automatic stay only halts the foreclosure process temporarily since eventually all non-exempt assets will be liquidated to repay creditors.
Contact a West Palm Beach Bankruptcy Attorney
Do you have questions about foreclosure and bankruptcy? One of our West Palm Beach bankruptcy attorneys can assist you. Contact Kelley, Fulton & Kaplan today.