What Is The Connection Between Bankruptcy And Stopping Foreclosure?
Bankruptcy and foreclosure are often discussed together when a person is struggling with debt, which is frequently due to the fact that the debtor is having difficulty making mortgage payments in addition to owing other debts and thus may be facing foreclosure. Under U.S. bankruptcy law, depending upon the type of bankruptcy you file, it may be possible to stop a foreclosure either temporarily or in the long term. All bankruptcy chapters put a hold on foreclosure proceedings in the short term, but some bankruptcy options can allow a debtor to make a plan to catch up on mortgage payments in order to avoid foreclosure while remaining in the property. Our West Palm Beach bankruptcy attorneys can provide you with more information about the connection between bankruptcy and foreclosure.
Automatic Stay Initially Stops Foreclosure and Applies to All Bankruptcy Filings
Whether you are filing for Chapter 7 bankruptcy, Chapter 13 bankruptcy, or Chapter 11 bankruptcy, the automatic stay will apply to your case as soon as you file for bankruptcy. As you might already know, the automatic stay is an injunction that prevents creditors or debt collectors from initiating new debt collection actions against you or continuing to take action against you for debt collection proceedings that are already underway. In practice, this means creditors and debt collectors cannot file a new lawsuit against you to recover debt or move forward with an existing lawsuit, garnish your wages or your bank account, or initiate or move forward with a foreclosure proceeding. As such, the automatic stay initially stops a foreclosure action from going forward no matter what type of bankruptcy you file for in Florida.
However, the automatic stay alone cannot ultimately stop a foreclosure in liquidation bankruptcy cases. To be clear, if you file for Chapter 7 bankruptcy, the automatic stay will only stop the foreclosure while your bankruptcy process is ongoing. Unlike in a Chapter 13 or Chapter 11 case, as we will explain below, the automatic stay does not give you an opportunity to catch up on mortgage payments through a repayment plan. It solely stops the foreclosure action initially.
You should also know that, in some cases, a creditor can ask the court to lift the automatic stay so that a collection action, or a foreclosure action, can move forward. Lifting the automatic stay is not the norm, but it can happen.
Automatic Stay in Conjunction with a Reorganization Bankruptcy Can Fully Stop a Foreclosure
Chapter 13 bankruptcy (or Chapter 11, when an individual does not qualify for Chapter 13 due to the amount of debt owed) can fully stop a foreclosure. The automatic stay is still critical for initially halting any foreclosure action, but then, through the repayment plan that is central to a reorganization bankruptcy, the debtor can catch up on mortgage payments and become current with the lender by the time the repayment plan terms are completed.
Seek Advice from a West Palm Beach Bankruptcy Attorney
If you have questions about stopping foreclosure through bankruptcy, one of our West Palm Beach bankruptcy lawyers at Kelley, Fulton, Kaplan & Eller can help.