How Can Chapter 7 Bankruptcy Help if You Are In Foreclosure?
If you are facing foreclosure, or think you could be, there are many answers and defenses that you can raise to the foreclosure. But what about bankruptcy? Can a bankruptcy help you avoid a foreclosure, or keep your home?
The Automatic Stay
The first benefit of filing for a bankruptcy if you are in foreclosure is the automatic stay. The foreclosure case will immediately stop once the bankruptcy is filed. This delay alone could provide you the time needed to modify a loan, talk to the bank, or gather the money that you need to work out a solution to the foreclosure.
This stay, or the stopping of all proceedings, applies until the property is sold. So even if you have a foreclosure judgment, so long as you file your bankruptcy before the sale date, the sale will be postponed.
However, it is always best not to wait until the last minute, as you never know whether you are a candidate for a bankruptcy, and your bankruptcy attorney may need time to make that determination for you. You should not assume that you can walk into an attorney’s office and have a bankruptcy filed the very next day.
What Chapter 7 Can and Can’t Do
However, Chapter 7 bankruptcy – the kind that wipes out all of your debts – does not automatically save your home. At some point, whether your bankruptcy is completed and you receive a discharge or if the bankruptcy is not completed and eventually dismissed, the bank will be able to resume with the foreclosure proceedings (assuming, again, that you haven’t worked out a solution to the foreclosure while the automatic stay was in effect).
One benefit of Chapter 7 bankruptcy is that even if your home is sold at foreclosure, the bankruptcy will wipe out any deficiency amount that you owe to the bank. Let’s assume your home is worth $200,000, sells at auction after the foreclosure sale for that amount, but you owe $250,000. Normally, the bank can and will come after you for the extra $50,000 that the foreclosure sale did not cover. However, if you have filed bankruptcy, the bank can no longer come after you. This makes bankruptcy a very good option for anyone in foreclosure with property that is worth significantly less than what is owed on the property.
Bankruptcy also will wipe out any money that you owe to the homeowners’ association. However, it will only wipe out amounts incurred before the bankruptcy was filed. That means that if you file for bankruptcy and obtain a discharge, and then there are, for example, eight more months until the foreclosure sale, any homeowners’ association dues that accrue during those eight months, are valid, and the homeowners’ association can come after you.
If you are in foreclosure and think bankruptcy may be an option for you, call the West Palm Beach bankruptcy lawyers at Kelley, Fulton & Kaplan at 561-264-6850 to help you understand how filing for bankruptcy can help you obtain a financial fresh start.