Bankruptcy and Foreclosure: What You Need to Know

Lenders filed over 78,000 foreclosure petitions in the first quarter of 2022. If you received one, you’re probably scrambling around to figure out what to do.

Foreclosure has several adverse effects. First, it causes you to lose your home. Second, it’s horrible for your credit.

You could consider bankruptcy and foreclosure to see if this might be your way out. However, you might also want to consider other options.

Here is a guide to help you understand how bankruptcy could help you avoid foreclosure if you’re behind on your mortgage payments.

Bankruptcy Might Temporary Stop Foreclosure

If you have a home in foreclosure, filing for bankruptcy might help you prevent the foreclosure from occurring. However, both of the main branches of bankruptcy operate differently.

The first option is Chapter 7. Chapter 7 provides relief from debts by discharging the debts. It also provides relief through an automatic stay, a court order that every person receives when filing for bankruptcy.

The automatic stay eliminates creditors from having the right to pursue the person’s debts. This order includes lenders, which means a lender must stop the foreclosure proceedings if the person files for Chapter 7.

Unfortunately, the automatic stay is temporary in a Chapter 7 case. Therefore, it will stop the foreclosure for a while, but it won’t permanently stop it.

Bankruptcy Also Permanently Stops Foreclosure

The other branch of bankruptcy you might want to use is Chapter 13. When you look at your mortgage and bankruptcy through this branch, you get more relief.

You can avoid foreclosure if you use Chapter 13, as it offers an automatic stay that lasts until your case closes. A Chapter 13 case closes at the end of the repayment plan.

Therefore, foreclosure and bankruptcy work well with this branch.

One thing to know is that you can lose your house to foreclosure after using Chapter 13 if you fall behind on your mortgage payments. Therefore, make sure you stay current on your payments if you use Chapter 13.

There Are Other Options

Bankruptcy isn’t the only option you can use to avoid foreclosure. You can use various other strategies, including selling a home in foreclosure. If you can sell your house before the foreclosure, you avoid losing your home.

You can look into to learn more about selling your house.

Another option is to complete a loan modification with your lender or inquire about loan forbearance.

Before giving up your home to foreclosure, look into these options. You might find one that is ideal for your situation. If you can, you’ll avoid the adverse consequences of foreclosure.

Bankruptcy and Foreclosure: Is It Right for You?

After reviewing this guide on bankruptcy and foreclosure, you might decide that bankruptcy is the right choice. If so, you can seek help from a bankruptcy attorney.

You might also want to look into other alternatives if you feel that bankruptcy isn’t the best option for your situation.

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