Will Bankruptcy Stop Foreclosure?

Bankruptcy can temporarily stop a foreclosure sale!  However, the answer as to whether bankruptcy can permanently stop a foreclosure process depends upon your unique circumstances and whether you file a chapter 7 or chapter 13 Bankruptcy.

If you are behind on your mortgage, you probably fall into one of three circumstances.  The first two circumstances arise when you fall behind on your mortgage because of a temporary economic set back.  Under these circumstances, you would have missed some mortgage payments during the temporary economic set back but, are now able to make your regular mortgage payments.  The third circumstances arises when you have fallen behind on your mortgage due to a permanent or long lasting economic set back and are unable to recover and resume making your regular mortgage payments.

Temporary Financial Set Backs

Temporary economic set backs can arise from a severe medical situation, temporary job loss, reduction in work hours or other temporary circumstances that causes a loss in your income.  Once the temporary set back has passed, you are able to resume making your regular mortgage payments.  But, like many people, you may be unable to pay all the arrearages and penalties that accumulated during the time you were temporarily unable to make your mortgage payments.  This is typically because the arrearages have grown to a large amount of money, for example, $10,000.

If You Can Make Your Mortgage Payment But Need Time To Pay Your Arrearages

The first circumstances occurs when you have recovered from the temporary economic set back and can begin making your regular monthly mortgage payment but, you need a brief period of time to recover so that you are able to pay your arrearages.  Unfortunately, some banks may start foreclosure proceedings, unless you can pay them the arrrearages, which are $10,000 in the above example.  If you cannot, the bank will proceed to foreclosure.  So even though you can begin making your regular payments, you may find yourself in foreclosure proceedings.

A chapter 7 bankruptcy will temporarily stop a foreclosure proceeding or sale and may give you enough time to come up with the arrearages owed to the bank.  You can typically get 45 to 65 days after filing chapter7 to pay the arrearages.  This may become possible if you no longer have to pay your creditors because they will be wiped through bankruptcy.

If You Can Make Your Mortgage Payment But Cannot Pay Off Your Arrearages

The second circumstances applies if you can make your regular monthly payments but do not have the resources to come up  with the arrearages in a brief period of time.  For example, if you cannot come up with the total arrearages during the time frame allowed by a chapter 7, a chapter 13 may allow you to pay off the arrearages over a period of three to five years.  For example, if you are behind $10,000, you could pay that over time, in monthly payments of as little as $166,67.

Permanent Financial Set Backs

The third circumstances is where you have fallen behind due to a permanent or long lasting economic set back and are unable to recover.  This means you cannot currently make your regular monthly mortgage payment and have arrearages.  In this circumstances, bankruptcy will not save your home.  You will have to let the bank foreclose through the bankruptcy process.  However the bankruptcy will eliminate any deficiency debt that arises from the foreclosure sale of your home and the resulting tax consequences that arise from a deficiency sale.