Overview 

Filing for bankruptcy can usually stop foreclosure or repossession by providing temporary relief from creditors through an automatic stay and, in some cases, provides an opportunity to get caught up on your payments. Chapter 7 bankruptcy offers a short-term solution, a temporary pause on foreclosures and repossessions while the Bankruptcy is pending. Chapter 13 bankruptcy allows for a repayment plan to catch up on missed payments, providing a more permanent solution. Consulting a bankruptcy attorney can help determine the right type of bankruptcy for your situation and help you navigate the process and protect your assets. 

Introduction 

Foreclosure and repossession are two of the most daunting words for a homeowner or car owner. Losing your home or vehicle due to financial distress can be a harrowing experience, especially if you depend on them for your livelihood. In such circumstances, bankruptcy can act as a lifeline to help you regain control of your finances and prevent the loss of your assets. This blog post will discuss the interplay between bankruptcy and foreclosure and repossession.  

Understanding Foreclosure and Repossession 

Foreclosure is a legal process where a lender (usually a bank) seeks to recover the outstanding balance on a loan by taking possession of the collateral used to secure that loan—your home—and selling it. This typically happens when a borrower fails to make the required mortgage payments on time, but can also result from missed payments to a homeowner’s association. Repossession, on the other hand, refers to the process by which a creditor takes back possession of a vehicle or other personal property used as collateral for a loan, due to the borrower's failure to make the required payments.  

Bankruptcy: A Solution for Financial Distress 

Bankruptcy is a legal process that allows individuals to seek relief from their debts by either liquidating their assets (Chapter 7), or creating a repayment plan (Chapter 13) to repay all or a portion of their debts over a period of time. Filing for bankruptcy can provide temporary relief from creditors, halt collection actions, and in most cases, pause or stop foreclosure and repossession proceedings. 

How Bankruptcy Can Stop Foreclosure and Repossession 

The Automatic Stay 

When you file for bankruptcy, an automatic stay is immediately put in place. This is a statutory order that takes place automatically upon the filing of a Bankruptcy that temporarily halts virtually all collection actions by creditors, including foreclosure and repossession attempts. The automatic stay allows you breathing room to assess your financial situation and work out a plan to resolve your debts within the Bankruptcy system.

Chapter 7 Bankruptcy 

Chapter 7 bankruptcy, also known as liquidation bankruptcy, is designed to discharge most of your unsecured debts, such as credit card debt and medical bills, by liquidating your non-exempt assets to pay off creditors. Although Chapter 7 does not specifically stop foreclosure or repossession permanently, the automatic stay temporarily pauses these processes, giving you time to find alternative solutions, such as negotiating with your lender or finding a buyer for your property. 

However, it's important to note that Chapter 7 bankruptcy will not prevent foreclosure or repossession permanently. If you cannot catch up on your mortgage or car loan payments during the duration of the automatic stay, your lender can request that the court lift the stay and proceed with the foreclosure or repossession process.  

Chapter 13 Bankruptcy 

Chapter 13 bankruptcy, also known as reorganization bankruptcy, is often a more suitable option for those looking to stop foreclosure or repossession permanently. Instead of liquidating your assets, Chapter 13 allows you to create a court-approved repayment plan to catch up on your missed payments and repay your debts over a period of three to five years. 

In a Chapter 13, you’ll pay your mortgage arrears over the course of your repayment plan. By filing for Chapter 13 bankruptcy, you can almost always stop foreclosure and repossession, as long as you adhere to the repayment plan and continue to make your regular monthly payments on time. Once you complete the repayment plan, most remaining unsecured debts will be discharged. 

Steps to Stop Foreclosure or Repossession with Bankruptcy 

Consult a Bankruptcy Attorney 

The first step in stopping foreclosure or repossession with bankruptcy is to consult a qualified bankruptcy attorney. We can help you determine whether bankruptcy is the right solution for your situation and guide you through the process. It's important to act quickly, as waiting too long can jeopardize your chances of stopping foreclosure or repossession.

Gather Financial Documents 

Once you’ve decided that Bankruptcy is the right option for you, we will provide you a list of documents to gather for us. Usually, this means two years of tax returns, and several months of bank statements and pay stubs.  

Determine the Right Type of Bankruptcy 

Upon reviewing your financial situation and your documents, we can help you decide whether Chapter 7 or Chapter 13 bankruptcy is the most suitable option for your situation. We can help you navigate the pre-filing requirements. 

File the Bankruptcy Petition 

Once you have completed those requirements, we will help you prepare and file your bankruptcy petition with the Bankruptcy court. This will initiate the bankruptcy process, and the automatic stay will immediately go into effect, temporarily halting foreclosure or repossession proceedings. 

Adhere to the Bankruptcy Requirements 

Throughout the bankruptcy process, it's crucial to adhere to all court requirements and deadlines. This includes attending (by telephone or zoom for now) a hearing in which you’ll be asked some basic financial questions. In the case of Chapter 13 bankruptcy, you will need to make regular payments according to your repayment plan and attend a debtor education course before your debts can be discharged.  

Complete the Bankruptcy Process 

For Chapter 7 bankruptcy, the process usually takes about four to six months, after which your eligible debts will be discharged, and the automatic stay will be lifted. In Chapter 13 bankruptcy, the process will be completed once you have successfully made all the payments under your repayment plan, which can take three to five years. 

Conclusion 

Bankruptcy can provide much-needed relief for those facing financial distress, including those undergoing the threat of repossession or foreclosure. While bankruptcy may not be an ideal solution for everyone, it can be a valuable tool for regaining control of your finances and protecting your most assets. By working closely with a bankruptcy attorney and following the required steps, you can successfully navigate the bankruptcy process and stop foreclosure or repossession.