Many people who file for bankruptcy worry about losing their homes. Some are facing foreclosure and wonder how bankruptcy can help. A bankruptcy attorney should be the first person you consult for questions regarding bankruptcy and foreclosures. Here are some questions you should pose to your bankruptcy attorney.
What Is an Automatic Stay?
With Chapter 7 or 13 bankruptcy, the court issues an order known as an automatic stay. This order directs your creditors to stop their collection activities. Therefore, if your lender has plans for a foreclosure sale for your home and you file a Chapter 7 bankruptcy, the sale will be postponed for a few months.
However, your lender can still appeal to the court to overturn the automatic stay order. Therefore, the bankruptcy will postpone the sale until the lender pursues a motion to lift the automatic stay order.
What Happens to Your Mortgage When You File for Bankruptcy?
In Chapter 7 bankruptcy, most of your assets are sold and distributed to your creditors, and your remaining debts are discharged. Therefore, the creditor cannot come to you for payment. However, if your home is listed in the Chapter 7 bankruptcy, the amounts you failed to pay on the mortgage can still be pursued by creditors. The lender still has the right to take your home through a foreclosure.
In Chapter 13, you are allowed to repay your debts through a repayment plan. The plan lasts for a few years, which means you can avoid foreclosure for some time. Under this arrangement, the delinquent mortgage debt is listed in the repayment plan. You still have to make the monthly payments on your mortgages.
What Happens If You Default on Regular Mortgage Payments?
When the court confirms your repayment plan under a Chapter 13 bankruptcy, your lender cannot foreclose for pre-bankruptcy mortgage arrears because you will pay them off through the plan. If you default on your monthly mortgage payments, your lender will seek permission to continue with foreclosure proceedings.
When the lender files a motion for relief, you have two weeks to dispute their motion. If you fail to do so, the court will grant their request to lift the automatic stay. If you dispute the motion, your bankruptcy attorney will convince the judge that you will catch up on the delinquent payments. The court will grant a protection order. However, if you do not comply with this order, the automatic stay will be lifted without any hearing.