Can Declaring Bankruptcy Stop Foreclosure? - Westgate Law

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Can Declaring Bankruptcy Stop Foreclosure?

Many people are aware of the possibility of stopping a foreclosure by declaring bankruptcy, but of those…a high percentage delay acting because they assume it’s an urban myth. In some ways, it is a myth because the reality of bankruptcy is a lot different than may be expected when approaching as a solution to pending foreclosure on your family’s home. Consider the facts and then decide if bankruptcy is the answer for you.

How Does Bankruptcy Stop Foreclosure?

If you are facing foreclosure, bankruptcy can stop the process. It’s not always a permanent solution to the problem, and it’s important to consider the powers inherent in the various types of bankruptcy, but it can definitely stop the foreclosure in its tracks.

When bankruptcy is filed, a protective provision referred to as the Automatic Stay goes into effect. The bankruptcy court that bars collection efforts by creditors grants the Automatic Stay. This ban includes any foreclosure action, repossession of vehicle/s, garnishment of wages, etc. Individuals who have filed for bankruptcy will even see phone calls from creditors stop almost immediately. It’s a temporary protection provided to the filer during the bankruptcy process, but it is immediate. Creditors can file a motion requesting that the stay be “lifted” so they can continue with their collection efforts, but unless the motion is granted, the lender is required to cease foreclosure action until the point in time when the bankruptcy is completely processed. This process typically takes 3 to 5 months.

Once foreclosure action has been put to a stop, you have to stop to consider what to do with your house. While your case is pending, the foreclosure is temporarily halted, but you’ll need to come to a few conclusions.

  1. You need to decide if you’re going to let the house go or if you are going to keep it.
  2. If you decide you are going to let the house go, you need to consider how you will avoid a deficiency judgment.
  3. If you decide to keep your house, you will need to decide upon the best course of action.

Individuals considering the possibility of avoiding a foreclosure on their home should also consider the seriousness of filing for bankruptcy. Weigh the positive effects with the consequences to ensure that you will be satisfied with the action for the long run. The seriousness of declaring bankruptcy is most evident in the longevity of its affect on your credit. Once filed, the notation cannot be removed from your credit report for 10 years; even if you don’t continue with the case. If you feel that this will not hinder your lifestyle or that the benefits will be worth the consequences, bankruptcy may be the best solution for you.

Check upcoming articles here on the Westgate Law blog for additional details on avoiding deficiency judgments and filing bankruptcy to save your house.

About the Author

Justin Harelik

Justin has a singular goal: to get people out of financial distress and move them to financial stability and prosperity. He does this by combining 15 years of in-depth experience in bankruptcy, credit management, debt negotiation and student loan modifications, and he does it with both English and Spanish-speaking clients.

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