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Can Filing for Bankruptcy Stop a Foreclosure?

Facing foreclosure is a daunting prospect that can leave you feeling overwhelmed and uncertain about the future. The complexities of the legal process, coupled with the emotional strain of potentially losing your home, can make it a deeply distressing experience. However, it's important to remember that you're not alone and there may be options available to you. One such option could be filing for bankruptcy, a legal process that might provide relief from debt and possibly not only halt the foreclosure process but give debtors a chance to cure their underlying mortgage arrearages which cause the foreclosure suit to be instituted.

Based in Hackensack, New Jersey, The Law Office of Marc G. Alster has over 30 years of experience guiding individuals through the intricacies of bankruptcy law. Serving clients throughout northern and central New Jersey counties as well as counties in New York, Mr. Alster is committed to providing personalized and effective legal solutions tailored to your unique situation. His firm's reputation for trustworthiness and personable service makes him a reliable ally during these challenging times. 

Understanding Foreclosure and Bankruptcy: An Overview 

Foreclosure occurs when a homeowner is unable to keep up with their mortgage payments, leading the lender to initiate a process to take back the property. Bankruptcy, on the other hand, is a legal status that can be invoked by an individual or business when they're unable to repay their debts. Filing for bankruptcy can temporarily stop the foreclosure process, providing a window of opportunity for the homeowner. 

The Power of the Automatic Stay in Bankruptcy Proceedings 

One of the most immediate benefits of filing for bankruptcy is the imposition of an automatic stay. This legal provision halts most collection activities, including foreclosure proceedings. This means that once bankruptcy is filed, the foreclosure process is put on hold, providing some breathing room for the homeowner. 

The Role of Chapter 7 Bankruptcy in Foreclosure 

When facing the threat of foreclosure, filing for Chapter 7 bankruptcy might seem like a viable option. It's crucial to understand, however, that while Chapter 7 can provide temporary relief, it does not offer a long-term solution for homeowners intending to keep their homes. 

At its core, Chapter 7 bankruptcy, also known as liquidation bankruptcy, allows for the discharge of most unsecured debts. This means certain obligations, such as credit card balances or medical bills, can be wiped out. However, secured debts, like your mortgage, aren't typically discharged. 

Upon filing a Chapter 7 bankruptcy, an automatic stay is put into effect. This stay halts most collection activities, including foreclosure proceedings. Therefore, if your lender had scheduled your home for a foreclosure sale, and you filed for bankruptcy before the sale occurred, the bankruptcy filing would stop the foreclosure. This can provide a much-needed breather, typically lasting three to four months, allowing homeowners to regroup and explore other options.

That said, it's important to note that Chapter 7 lacks a mechanism to make up for missed mortgage payments. While the automatic stay can temporarily delay the foreclosure process, once the bankruptcy case is closed and the automatic stay lifted, the lender can proceed with the foreclosure action.

In some cases, the lender can ask the bankruptcy court for permission to proceed with the sale by filing a "motion to lift the automatic stay." If successful, the foreclosure action could resume even before the typical three to four months of protection from foreclosure ends.

If you've already lost your home to foreclosure and the lender wants you to pay a "deficiency judgment," Chapter 7 bankruptcy can also be used to eliminate this debt. A deficiency judgment arises when your mortgage lender forecloses on your house but can't sell it for enough money to pay off your mortgage balance. In Chapter 7, this deficiency would be categorized as a dischargeable unsecured debt, much like a credit card obligation or medical bill.

Navigating the complexities of Chapter 7 bankruptcy and its impact on foreclosure requires sound legal advice. 

How Chapter 13 Bankruptcy Can Prevent Foreclosure 

If you're a homeowner facing the daunting prospect of foreclosure, Chapter 13 bankruptcy might provide the lifeline you need. Unlike Chapter 7 bankruptcy, which primarily provides temporary relief, Chapter 13 offers a more comprehensive solution, potentially enabling you to keep your home.

Chapter 13 bankruptcy, also known as 'reorganization bankruptcy,' allows individuals with a regular income to develop a plan to repay all or part of their debts over a period of three to five years. This repayment plan is particularly beneficial for homeowners, as it provides a structured method to catch up on overdue mortgage payments.

Upon filing for Chapter 13, the court issues an automatic stay, immediately halting foreclosure proceedings. This means that even if your lender had scheduled your home for a foreclosure sale, filing for bankruptcy before the sale occurs would stop the foreclosure in its tracks.

Once your Chapter 13 repayment plan is in place, you must make consistent, timely payments to the bankruptcy trustee, who then distributes these funds to your creditors, including your mortgage lender. It's crucial to note that during this period, you must also stay current with your ongoing monthly mortgage payments. If you adhere to the terms of your repayment plan and make all necessary payments, at the end of the bankruptcy period, you can avoid foreclosure and keep your home.

Moreover, Chapter 13 bankruptcy may also give you the ability to eliminate payments on a second or third mortgage. If your home's value has become less than what you owe on your first mortgage, the junior mortgages become wholly unsecured. In such cases, the Chapter 13 court can strip off these liens and recharacterize them as unsecured debt. At the end of the Chapter 13 case, any remaining balances owed on these recharacterized mortgages are subject to being discharged along with all other general unsecured debt.

However, it's essential to bear in mind that not everyone is eligible for Chapter 13 bankruptcy. Certain debt limits apply, and you must have a regular income sufficient to cover your repayment plan, ongoing mortgage payments, and other basic living expenses. 

Eligibility for Bankruptcy and Foreclosure Relief: What You Need to Know 

Filing for bankruptcy isn't an option available to everyone. Each type of bankruptcy has its own eligibility requirements. For Chapter 7, there are income limits based on household size and income level. Chapter 13 requires a steady income to fund the repayment plan. Consulting with an experienced bankruptcy attorney like Mr. Alster can help you determine your eligibility and guide you through the process. 

Legal Assistance When You Need It Most 

Facing foreclosure is undoubtedly challenging, but you don't have to navigate this difficult period alone. Filing for bankruptcy may provide a viable path to halt the foreclosure process and protect your home. Understanding the basics of foreclosure and bankruptcy and the benefits of the automatic stay provision, as well as the options available under Chapter 7 and Chapter 13 bankruptcy, is crucial in making an informed decision. Based in Hackensack, New Jersey, The Law Office of Marc G. Alster is here to provide the support you need during this challenging time. Reach out to Mr. Alster today to explore your options and take the first step towards a brighter financial future.