Can Bankruptcy Stop Foreclosure?

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Can Bankruptcy Stop Foreclosure?

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Can Bankruptcy Stop Foreclosure?

Simply, yes.  Filing for bankruptcy does stop a foreclosure proceeding.  It is not, however, the end of the foreclosure proceeding.

11 U.S.C. §362 of the Bankruptcy Code is commonly referred to as the “automatic stay”.  A majority of bankruptcy filings in New York and on Long Island make full use of the automatic stay.  It works as follows:

An individual is currently being sued by a debt collector.  Although most of us are far more concerned with a “foreclosure” than a small claims action the two lawsuits do come down to a debt collector suing an individual.  The individual may not be prepared for the law suit, may not understand the consequences of the lawsuit or may even be hiding from the lawsuit.  So, now, the individual receives a letter stating that the debt collector is going to ask for a “default judgment” that may take their bank account, their income or even their house.  Rather than lose assets that may be protected the individual can file a bankruptcy and obtain the “stay”.

So, in the course of a foreclosure proceeding an individual may file bankruptcy under Chapter 7 and the action will be stayed or paused.  The mortgage does not go away, the lawsuit does not go away, but the individual is provided a “breathing” period with which to plan a strategy.  The legal team at will plan out a strategy specifically tailored to your financial situation.

Once your Chapter 7 bankruptcy is filed you will have a clear picture of the matter in front of you.  The income that was going to pay debts may now become income that can be used towards your mortgage.  Income executions or “garnishments” may be removed.  In fact, the Court, itself, may assist in a modification of your mortgage.

It is important to remember that the lawsuit is not dismissed.  The bank may, and probably will, move the Court to “lift” or end the automatic stay.  If successful, the bank may continue the foreclosure lawsuit.  However, the individual will have a chance to address and, possibly, resolve the issue in the bankruptcy filing.  Outside of a foreclosure it is rare that a creditor will seek to lift the stay.  Most of the time once a lawsuit is stopped it likely is stopped for good.  Remember, each case varies.

As with any situation, there are guidelines that must be followed before a Chapter 7 may be filed.    The legal team at understands the importance of the individual and the details of each and every matter.

We understand the fear that comes with being sued.  But the worst possible approach is to pretend that nothing is happening.  You have rights. knows and will explain your rights.  Call today for a free consultation.

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