Is Foreclosure Law Applicable in Bankruptcy?

One of the reasons many debtors attempt to file bankruptcy, aside from lifting the burden of heavy unsecured debt, is to avoid losing their home under foreclosure law. Foreclosure is the process whereby a creditor with a lien on a debtor’s property may claim that property once the loan is in default. When that property is a home, the claim is called foreclosure. However, for some people bankruptcy may be a means of avoiding foreclosure and saving their home.

Foreclosure Law

Foreclosure law generally allows a mortgage holder to call in the entire loan after just one missed payment. These days when so many properties are in default, creditors are more likely to wait until three or four payments are missed in hopes that the homeowner may find a way to get back on their feet and bring the mortgage current.

Once a creditor determines that a homeowner is not going to be able to continue to make mortgage payments, they usually begin foreclosure proceedings. The process requires a significant amount of notification, depending on state laws and the exact wording of the mortgage note. However, it does provide the debtor with as much as three or four months to find an alternative to foreclosure. For some, that alternative is bankruptcy.

Bankruptcy Solutions

One of the most important benefits of filing a foreclosure petition is the automatic stay that goes into effect the minute the court approves a bankruptcy petition. The stay is only temporary, but it requires all creditors to cease their collection, foreclosure, or repossession efforts until the stay is lifted.

However, creditors do have the right to request the court to lift the stay for their specific debt. If granted, the creditor has the right to continue foreclosure proceedings and sell the home at auction. Generally, the court only grants such lift stay requests when there is some concern that the property will deteriorate or some other threat to the value of the property.

If the foreclosure has already begun before the bankruptcy stay, and the homeowner is unable to protect their home through the bankruptcy process, once the petition is granted the foreclosure can continue. The options homeowners have to protect their home include:

• Exemption – in chapter 7 bankruptcy, if their state or federal homeowner’s exemption is sufficient to protect their home, they can retain it as long as they can reaffirm the mortgage with their creditor and continue making payments after other debts have been discharged in the bankruptcy

• Chapter 13 – if they file for this type of reorganization and they have sufficient income to make payments once other debts have been caught up or discharged, they should be able to keep their home

Getting Legal Help with Foreclosure Laws and Bankruptcy

Those who are considering bankruptcy as a way to save their homes should consult a bankruptcy attorney before pursuing this important step. Many elements of this process are detrimental to their financial future, their reputation, and even their job potential. A bankruptcy attorney can help them understand if this is the right choice and the best path to take to obtain the greatest benefits.