If you’re either about to fall behind on a mortgage payment or you’re already several payments behind schedule, you may – very understandably – be concerned that your home is at risk of being foreclosed upon. Regardless of where you are in the foreclosure “risk” timeline – from anticipating a missed payment to being served a notice that your house is being sold – there may be options available to you that can help you to save your beloved home.
The Automatic Stay
At most steps along the foreclosure risk timeline, filing for bankruptcy can halt a foreclosure action for as long as your bankruptcy case remains active. As an experienced foreclosure lawyer – including those who practice at Therman Law Offices, LTD. – can explain in greater detail, this temporary relief from the risk of foreclosure occurs due to the protections of a legal device known as the automatic stay.
The automatic stay goes into effect as soon as someone files for bankruptcy, regardless of whether they file for relief under Chapter 7 or Chapter 13 of the U.S. Bankruptcy Code. When the automatic stay kicks in, a filer’s creditors are – with very few exceptions – prohibited from pursuing collection action against the filer until the filer’s bankruptcy case is favorably closed or unfavorably dismissed. Common collection actions halted by the automatic stay include demanding repayment, repossession, wage garnishment, and foreclosure.
The protections afforded by the automatic stay primarily exist for two reasons. First, this safeguard allows the court to process and evaluate a filer’s case without concern that the debtor’s financial situation will continue to change over the course of a case due to actions taken by creditors. Second, this safeguard allows debtors to potentially work out favorable terms of repayment and/or debt relief with their creditors with less stress and somewhat less urgency than they otherwise would. This allows for clear-headed thinking and the capacity to consult an attorney without fielding constant pressure-laden calls from creditors at the same time.
Chapter 7 vs. Chapter 13
If saving your home from foreclosure is one of your primary motivations for filing for bankruptcy and you’re unlikely to come into a large sum of money that can be used as repayment soon, you’ll likely want to consider filing for Chapter 13 bankruptcy. A Chapter 13 bankruptcy case will allow you to reorganize your debts, negotiate with your creditors, and make manageable payments over a 3-5-year period. As a result, you’ll benefit from the protections afforded by the automatic stay for a lengthy-enough time that you should be able to get your mortgage repayment situation back on track before your case is closed.
If you’re dealing with very temporary financial trouble, are going to come into a significant sum soon that can be redirected at your overdue mortgage payments, and you don’t earn much money, you may want to consider filing for Chapter 7 bankruptcy. Your bankruptcy case will be resolved within a matter of months, so you won’t have much time to benefit from the automatic stay. But, if you’re eligible to file for Chapter 7 relief, your qualifying debts (not including your mortgage) will be eliminated once your case is favorably closed.