When you’re behind on your mortgage payments and facing foreclosure, filing for bankruptcy could give you relief. Before you decide to file, it’s important to understand why the bankruptcy filing could stop a foreclosure and how it will affect your mortgage and property rights moving forward.
Bankruptcy Can Stop a Foreclosure Proceeding
Shortly after you file for bankruptcy, the court issues an automatic stay order. The automatic stay is essentially a “stop collections” order to your creditors. Creditors and debt collectors must cease all collection efforts, including seeking foreclosure.
The stay applies to foreclosures at nearly any stage of the process up to the time of a foreclosure sale. In other words, even if your mortgage lender has already scheduled a foreclosure sale, filing for bankruptcy will stop the sale. However, if the lender has already conducted the sale, filing would be too late. For some people in dire financial straits, hearing that the foreclosure sale has been scheduled is a wakeup call that they need debt relief now. Filing for bankruptcy will halt the sale and provide time to determine the next steps.
How Long Will the Automatic Stay Last?
The automatic stay allows you a little breathing room, but it doesn’t last forever. If you file for Chapter 7 bankruptcy, the stay will typically last about 3 to 4 months while your bankruptcy case is pending. When the stay ends, your mortgage lender can continue the foreclosure process. Additionally, your creditors have the option to file motions requesting relief from the automatic stay. Mortgage lenders often file these motions to attempt to move forward with the foreclosure process. If your lender files such a motion and is successful, they can continue foreclosing even while you’re in bankruptcy.
Chapter 7 is geared towards people who are ready to wipe the slate clean due to significant debt, even if that means losing their house or car. We warn debtors who file for Chapter 7 bankruptcy that they are likely to lose their house if it’s already in foreclosure. Other, unsecured debts, such as credit card debt and medical debt, can be discharged in the Chapter 7 process, meaning you’ll exit bankruptcy with fewer creditors on your back.
If you want to try to keep the house and pay back your lender for those overdue mortgage payments, talk to your lawyer about whether you qualify for Chapter 13 bankruptcy. People with steady income may have the option to file Chapter 13 and pay for the mortgage as part of a monthly payment plan arranged by the court. However, you must earn a sufficient regular income to cover both the monthly payments and your living expenses.
Frequently Asked Questions
When will my lender start foreclosure proceedings?
Usually a mortgage lender will initiate foreclosure proceedings after you have missed several payments. If you’ve only missed one payment so far, do your best to pay the mortgage the next month. If you anticipate missing more payments, you may have options now such as loan forbearance or short selling the house.
The foreclosure sale is coming up and I can’t afford a new place. What should I do?
We highly recommend setting up a free consultation with a local Oklahoma bankruptcy lawyer. Filing for bankruptcy could give you more time to sort out your options for housing. As discussed above, the automatic stay imposed by the bankruptcy court keeps your lender from foreclosing for a short time, even if the foreclosure sale is already scheduled.
I have a second mortgage on my home – how will bankruptcy affect it?
In some Chapter 13 filings, depending on the specific facts, the bankruptcy court might recategorize a second mortgage as unsecured debt. The recategorization would allow discharge of the second mortgage debt during bankruptcy. This determination depends on the specific facts of your case, so contact an attorney to learn more.
I already lost a home to foreclosure, but I still owe money on it. Should I file for bankruptcy?
Talk to a local bankruptcy lawyer to learn about your options. The money you still owe may be treated as an unsecured debt and be dischargeable in bankruptcy.
Explore Your Options for Debt Relief with Our Legal Team Are you facing foreclosure on your home because you missed several mortgage payments? You need trustworthy legal advice about your debt relief options. Reach out to Chris Mudd & Associates PLLC to get started with a free initial consultation focused on facing your financial challenges. Our bankruptcy lawyers have been helping clients in the Oklahoma City metropolitan area get the fresh starts they need for more than 29 years. Text us or fill out our contact form today so we can help you get your life back in order.