What Effect Does Bankruptcy Have on a Foreclosure?
When the economy went sour, and thousands of people started losing their homes to foreclosures, one way that the general public thought was a good idea to stave off a foreclosure was bankruptcy. There was a common perception that filing a bankruptcy would put off a foreclosure, or even allow someone to keep their home. This perception is not completely correct.
The Benefits of Filing Bankruptcy
One benefit to filing bankruptcy (when it comes to foreclosures) is the automatic stay. This is an order entered by the court that will, at least temporarily, freeze the foreclosure case or the foreclosure sale in its tracks.
If a foreclosure judgement has already been entered but the sale has not yet occurred, the automatic stay when the bankruptcy is filed will not undo or reverse the foreclosure order once it is entered. It will only cancel and delay the scheduled sale date.
However, that delay in the sale may still have a benefit to homeowners who are trying to work out modifications, or who just need more time before leaving the property.
If a judgement has not been entered in the foreclosure case at the time when the bankruptcy is filed, the law is unclear whether, and to what extent, a homeowner can continue to defend a foreclosure after the bankruptcy has been filed.
Even if your bankruptcy is eventually granted, that will not, by itself, save your property in a Chapter 7 bankruptcy. It will, however, free you from owing any money after the foreclosure process.
In many cases, homeowners may owe a deficiency judgment after foreclosure. This is where the home is worth less than what the homeowner owes on the loan. Normally, the lender can go after you for that balance even after your home is sold. Homeowners can end up owing tens and sometimes hundreds of thousands of dollars, depending on the value of the home at the time of the foreclosure sale.
A bankruptcy will wipe out this amount, allowing a homeowner to “walk away” free and clear of any debt.
Chapter 13 Bankruptcies
This is all in a Chapter 7 bankruptcy, which completely eliminates most debt. A Chapter 13, in some cases, can save a homeowner from foreclosure and allow the homeowner to keep the property. However, Chapter 13 bankruptcy requires that a homeowner make a certain level of income so that a repayment schedule to creditors can be established.
Homeowners who do not make enough money, or who do not want to make payments, may not qualify for or want a Chapter 13 bankruptcy.
Remember that not everybody can, or should, file for any kind of bankruptcy. Many times, months of financial planning are needed before a bankruptcy is filed. Bankruptcy is not a last minute or sudden decision, and may not be right for you, so if you are looking to bankruptcy to help in any way in a foreclosure, you should plan ahead.
Are you in foreclosure and have questions about your rights and defenses? Contact Jacobs Legal to speak with one of our Miami foreclosure defense attorneys today.