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Can Bankruptcy Stop Foreclosure? – What Kind of Foreclosures Can Bankruptcy Stop?

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By Jacob Sal Linwood
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Can bankruptcy stop foreclosure

Many people who are behind on their mortgage payments wonder whether filing bankruptcy will help them stay in their homes. Certainly, it can stop the foreclosure process by putting a halt to collection activities and providing time to examine one’s financial situation and options. Bankruptcy can even give homeowners the opportunity to rework their debt and restructure it, which could help them keep their home and have a healthier financial outlook in the future.

Nevertheless, bankruptcy should not be considered a cure-all for debt problems. It can have a significant impact on one’s credit score, and it may not prevent foreclosure altogether. Instead, it should be considered a last resort when all other options have been exhausted.

Bankruptcy Can Stop Foreclosure, But What Kind?

There are two types of foreclosures: non-judicial and judicial. Non-judicial foreclosures are when a lender takes the property without going to court and usually happens when the loan contract includes what’s known as a power of sale clause that says the lender can seize the property if the borrower fails to make payments. Judicial foreclosures, on the other hand, are when a lender files a lawsuit in court in order to prove their right to take the property. This type of foreclosure usually occurs when the loan contract does not include a power of sale clause or when the borrower has a default on a home equity loan or a homeowner’s association lien placed on the property.

Both kinds of foreclosure are a serious issue and should not be taken lightly. If you are facing a foreclosure, it is important to seek legal advice as soon as possible. A knowledgeable attorney can provide information on the different steps that can be taken to protect your home, including filing for bankruptcy.

Foreclosures are complex matters and the answer to Can bankruptcy stop foreclosure? will vary depending on the circumstances of each case. The first thing to note is that when someone files for bankruptcy, an automatic stay goes into effect that stops creditors from taking any collection actions. This includes contacting the debtor and pursuing legal action, which would stop a foreclosure proceeding in its tracks.

The next step is that a debtor in bankruptcy must work with their attorney to draft a plan that will allow them to catch up on any outstanding payments, including the mortgage payment. This plan will typically consist of paying off the arrears over a three to five-year period. In some cases, a debtor’s attorney can negotiate a deficiency balance with the lender in order to avoid having to sell the property.

In any event, a debtor will need to complete the bankruptcy process before the lender can sell the home at foreclosure auction. This is because the trustee will use funds from the home sale to pay priority debts, such as taxes and support obligations, before paying off the mortgage debt. This will ensure that the debtor does not end up with a deficiency balance after the foreclosure is over.

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