Does Chapter 7 Impact Foreclosures?

You might have heard that you can file for bankruptcy in order to stop a foreclosure. If you are facing the possibility of foreclosure, you might be thinking that filing for bankruptcy is the right decision for you because it will allow you to stop your foreclosure while giving you a way to manage your other debts, such as credit card debt or medical debt. Yet it is critical to understand that different types of bankruptcies have different effects on foreclosures. In short, you cannot rely on all types of bankruptcy to stop a foreclosure and to allow you to keep your home. Our West Palm Beach bankruptcy lawyers can provide you with more information.

Automatic Stay Does Stop Foreclosures in Bankruptcy Cases 

When you file for bankruptcy, you may know that the automatic stay is an injunction that will immediately apply to your case and will prevent creditors or debt collectors from continuing to contact you or to continue taking action against you to collect debts. One of the benefits of the automatic stay is that it also halts foreclosure proceedings in a bankruptcy case. The automatic stay will stop a foreclosure from moving forward if it is already underway, and it will stop a lender from initiating a foreclosure action.

However, the automatic stay does not stop a foreclosure forever.

Chapter 7 Bankruptcy Cases and Foreclosure

In any type of bankruptcy case, the lender can ask the court to lift the automatic stay in relation to the mortgage debt and home foreclosure, and this is much more common in Chapter 7 cases. In a Chapter 7 case, the automatic stay will only stop a foreclosure temporarily. You will still need to move out of your home and will not be able to keep the property if you owe mortgage debt that you want to have discharged in your bankruptcy case. As such, filing for Chapter 7 bankruptcy will not stop a foreclosure and allow you to keep your home.

Chapter 13 Bankruptcy Cases 

Chapter 13 bankruptcy has a different relationship to foreclosures than does Chapter 7 bankruptcy. In a Chapter 13 bankruptcy, the automatic stay still prevents a foreclosure action from being initiated or from continuing. Then, because of the nature of Chapter 13 bankruptcy as a reorganization bankruptcy, the debtor can use that period in which the automatic stay applies to incorporate mortgage debt into the Chapter 13 repayment plan. By working in mortgage debt into the repayment plan, the debtor can catch up on mortgage payments and can get back on track with the home loan.

Accordingly, Chapter 13 bankruptcy cases stop foreclosure and can allow a homeowner to keep the home. In situations where an individual debtor needs to file for Chapter 11 bankruptcy, the same arrangement can happen.

Contact Our Bankruptcy Attorneys in West Palm Beach 

Do you have questions about bankruptcy and foreclosure? You should contact one of our West Palm Beach bankruptcy lawyers at Kelley Kaplan & Eller today.

Sources:

law.cornell.edu/uscode/text/11/362#:~:text=The%20automatic%20stay%20is%20one,harassment%2C%20and%20all%20foreclosure%20actions

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-13-bankruptcy-basics