Many homeowners simply do not know what to do when their property is going through foreclosure. One of the most common questions homeowners ask when they are in this stage is,will filing for bankruptcy stop the foreclosure process?
The answer to this is yes and no.
Often times homeowners will file for Chapter 13 bk just to specifically to stop the auction sale date of their property. Only to find out later, that their home loan is not included and now they may have both of these disasters on their credit reports. In most scenarios, when you file bankruptcy, there will be an automatic stay prohibiting your creditors from attempting to collect or contact you. However the stopping of the sale date is only temporary.
Many times a creditor such as your mortgage servicer can get around the automatic stay by insisting the courts to remove or to lift the stay because it is not legally binded to the foreclosure proceedings. Most of the time a homeowner will cough up a couple thousand dollars to file an emergency bankruptcy the day before their home is going to be sold at the notice of trustee sale. More than likely there will be no equity in the property and there is no way for the homeowner to come up with the full amount owed on their loan.
This scenario is real and very quite common in today’s economic crisis. The banks know this is happening and their lawyers understand this process very well. So because of this shortly after you file for bankruptcy, the lender will ask for permission to go ahead with the foreclosure and most of the time the foreclosure will indeed proceed. Now you will be stuck with two huge hits on your credit and are more than likely physically and mentally distressed.
One thing that you need to understand is that if you have a second lien on your home there are different rules that may apply and help you to choose the best route possible. But if you are one of many who just have a first mortgage and decide to file, if is is before the actual sale date, a bankruptcy will temporarily stop the foreclosure from taking place.
Under chapter 13 bankruptcy you will be required to make your regular monthly payments once the automatic stay is lifted from your property. At this time you will then be given a reasonable period of time to bring your mortgage payments current and to save your home. Obviously filing for bk is only a temporary fix and if you have no way of paying your mortgage, then maybe this is not the best option for you to choose. In some cases bankruptcy may be the best solution for a lot of financial hardships.
However, this route should be used as a last resort due to its limiting protections for the homeowner and the long lasting consequences to your hard earned credit score.