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► ► ► IMPORTANT, PLEASE READ: If you have a fast approaching foreclosure sale/aution date, bankruptcy is likely your best alternative for stopping the foreclosure process. Filing bankruptcy can immediately give you an automatic stay (postponement) of the sale, and allow you time to reach a lasting solution for your mortgage. ◄ ◄ ◄

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Bankruptcy and Foreclosure

Bankruptcy Delays Foreclosure with an Automatic Stay

stop foreclosure with bankruptcyWhen you file a Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an Order for Relief (automatic stay). This stay orders your creditors to cease all collection efforts, including foreclosure. That means that a foreclosure sale of your home will be postponed until the bankruptcy is finalized. The process usually takes about three months.

However, there are two exceptions to this rule. The lender can file a motion to lift the stay, which asks permission from the bankruptcy court to continue with the foreclosure sale. If it is granted, the foreclosure process can resume. Regardless, bankruptcy will normally postpone the sale by a couple months. The second exception arises when a Foreclosure Notice has already been filed. Almost all states require lenders to notify homeowners before selling their property. A bankruptcy’s automatic stay may not stop the clock on an advance notice of foreclosure sale. For example, in California a lender is required to give a homeowner at least three months notice before selling the home. If a California resident receives their three month notice, and files a bankruptcy one month later, the three month period will expire two months into the bankruptcy. At that time, the lender could file a motion to lift the stay and ask the court’s permission to schedule the foreclosure sale.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to set up a repayment plan for the past due amount. In the bankruptcy, you establish a period of time over which you will repay that amount in monthly payments to the Trustee. During this period, you will be required to pay BOTH the trustee payment AND your regular mortgage payment to keep your mortgage current and avoid foreclosure. If you can meet those requirements, you will avoid foreclosure and stay in your home.

Chapter 13 can also help eliminate second mortgages. Chapter 13 allows bankruptcy courts to recategorize second mortgages as unsecured debt. In a Chapter 13, unsecured debt usually does not have to be paid back. This recategorizing process is possible if your first mortgage is secured by the entire value of your home.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy relieves a homeowner all the debt secured by the home, including mortgages and home equity loans. It also provides some tax liability forgiveness. However, when you mortgage your property, you use it as collateral and create a lien on your property. As a Chapter 7 does not lift the lien on your property, the lender can still foreclose. Unless the homeowner chooses to reaffirm the mortgage debt, the property will be forfeited or lost to foreclosure. (Alternatively, a Chapter 13 actually pauses action on the lien.)