If you are faced with a potential foreclosure, bankruptcy may be able to help you. Here is a guide that explains how both of these processes can work together.

What is Foreclosure?

A foreclosure is when the owner of the mortgage takes back the property after the homeowners fall behind on mortgage payments. The lender, which is usually a bank, then sells the home at an auction, and the sales go towards the outstanding balance of the home. Depending on the state, the homeowners may have to leave the home, then they may have to pay the lender the outstanding balance they owe. While every lender is different, foreclosure usually happens after the owner has gone between three and six months without paying the mortgage. 

With the help of a lawyer, there are some lengths the homeowners can go to as a way to keep the property in their name, including filing for bankruptcy. 

What is Bankruptcy?

Bankruptcy is the legal process where a person publicly declares that they are unable to pay their outstanding debts. There are different types of bankruptcy, depending on the situation at hand. When it comes to foreclosure agreements, filing Chapter 7 or Chapter 13 bankruptcy may be able to help.

Chapter 7 Bankruptcy and Foreclosure

As the faster of both options, filing Chapter 7 bankruptcy only takes about six months from beginning to end. When you file this — known as the automatic stay — the lender has to immediately stop their foreclosure proceedings. This usually gives the homeowners about three to four months of leeway, however, the lender may be able to file for a motion for relief from stay. Doing so means the lender has every right to go ahead and bring the property to auction, no matter if the owner has filed bankruptcy or not. Filing a Chapter 7 is a good option for homeowners who want to get the process over with as soon as possible, but understand that they may lose their home in the process.

Chapter 13 Bankruptcy and Foreclosure

Filing Chapter 13 will take about three to five years to complete. Many homeowners choose to take this route as it allows them to stay in their home, but there are some rules they must abide by. They must pay off both their outstanding balance on the mortgage (the arrearage), alongside the current mortgage payment. If you are able to make all of these payments on time and within the decided-upon time frame, the mortgage and deed to the property will stay in your name once the process is over. This option is best for those who are very far behind on their mortgage payments but would like to stay in their home for as long as possible.

Bankruptcy and foreclosure can go hand in hand, but it can be confusing to figure out these legalities without an experienced lawyer by your side. A good team of foreclosure lawyers will be able to navigate the world of foreclosure for you and give insight on if bankruptcy is the best option for you and your situation. If you have any questions about how to get started, do not hesitate to contact an attorney today.