If you have been facing foreclosure, and decide to file for Chapter 7 bankruptcy, a lot can happen in a short amount of time. As soon as your petition to file for bankruptcy is processed, an automatic stay will be placed on your account. This means that your creditors are ordered to stop pursuing you for the debt that you owe. This will immediately stop any foreclosure proceedings.
However, the process is much more complicated than that, and there are many pitfalls you have to watch for when filing for Chapter 7 bankruptcy. Keep reading to learn more about foreclosure and Chapter 7 bankruptcy.
If you are at the point where you can no longer afford your mortgage payments along with your other costs of living, you might be considering filing for bankruptcy to help stop a pending foreclosure. The question is: can filing for Chapter 7 bankruptcy really stop a foreclosure. And if so, for how long? This article is going to take a look at what Chapter 7 bankruptcy can do for you in this situation, and if it really is the best option.
What is Chapter 7 Bankruptcy?
Before we get started looking at how filing for bankruptcy might help you, let’s define what Chapter 7 bankruptcy really is. Chapter 7 bankruptcy is often called liquidation bankruptcy. This is because, once you file for Chapter 7, a bank trustee typically begins liquidating your assets to help pay off your debt. This means that any secured debt (debt that is backed by collateral) you have is in danger of being sold off to repay the creditor. This includes your car, your home, and other valuable items. At the end of Chapter 7 bankruptcy, the court will discharge the majority of your debt. So now that we understand the basics of Chapter 7 bankruptcy, let’s cover how it can keep your home from being foreclosed.
Does filing for Chapter 7 bankruptcy stop foreclosure?
The initial answer is, yes! As soon as you file for bankruptcy, all debt collection and foreclosure proceedings must immediately stop. Unfortunately, this does not mean that your house will no longer be foreclosed on, it really just means that, for the time being, the bank has to wait to continue with their foreclosing proceedings. There are two main ways that banks can continue to foreclose on your house, even after you file for bankruptcy.
- First, at the end of your bankruptcy hearing, if you still haven’t caught up on missed payments or you are still missing new payments, the bank can continue pursuing you for payment. Once your case is complete, the automatic stay, which keeps lenders from collecting, is lifted. This removes your protection from foreclosure.
- If the bank does not want to wait the few months that it takes for your hearing to come to an end, they can file a motion (or request to the court) to lift the protection so that the foreclosure can proceed. If the bank does this, there are only a few reasons why the court would deny the motion:
- The foreclosure is not legal
- The property has substantial equity that is not exempt (more on this in a second)
- The lender did not comply with procedural requirements
- The lender cannot produce sufficient evidence to show it has the authority to seek foreclosure
If the court decides to lift the automatic stay, you are once again going to be in danger of foreclosure.
Do I Qualify for Chapter 7 and What Is the Cost?
Two of the most important questions you may consider is whether you qualify for Chapter 7 bankruptcy and the cost of Chapter 7 bankruptcy. As such, we built the following bankruptcy cost and qualification calculator based on the means testing forms to help you estimate qualification.
Something else to consider
The thing is, filing for Chapter 7 bankruptcy to stop foreclosure may not be the best idea, to begin with. Though it does have the possibility of buying you a couple of months, the bank can still foreclose on your house after the proceedings. However, there is something else that puts your house at risk when filing for Chapter 7 bankruptcy. Your bankruptcy attorney has the right to sell your home to pay off your debt if the house has more equity than is protected by an exemption. If this is true for your house, your bankruptcy trustee will end up selling your house anyways. Make sure to consider this before filing for Chapter 7 bankruptcy.