Foreclosure allows a mortgage business to seize property when the borrower discontinues his monthly payments. The rationale behind the lack of payments differs depending upon the homeowner, but frequently a change in financial situation is to blame. In cases like these, some people file for bankruptcy to stop foreclosure from occurring.
Bankruptcy prevents foreclosure through an automatic stay. Santa Clara University Law defines the automatic stay as an injunction preventing any creditor from taking legal actions against a person who has declared himself bankrupt. His mortgage company may not initiate or proceed with foreclosure. Debtors receive protection through the automatic stay regardless of whether their personal bankruptcy case is a Chapter 7 or Chapter 13.
According to the Federal Trade Commission, Chapter 13 bankruptcy allows debtors to repay outstanding debts rather than lose property as a consequence of their previous inability to make payments. Chapter 7 bankruptcy, however, requires the bankruptcy trustee to sell off any non-exempt assets the debtor owns–including her property. Thus, if the individual’s home does not fall under the exemptions allowed by her state or the national government, she could lose her home to the bankruptcy court rather than her mortgage lender.
A debtor who can afford to cover his mortgage payments after the bankruptcy court releases other outstanding debts might have the option to”reaffirm” their own mortgages. This prevents foreclosure from the mortgage business whilst at the same time preventing the bankruptcy trustee from seizing and selling the property. Reaffirmation is readily available for debtors in Chapter 7 bankruptcy who would otherwise lose their homes provided they have sufficient monthly income to cover their house payments and the mortgage lender agrees to the reaffirmation.
In a typical bankruptcy case, irrespective of chapter, the automatic stay remains in place until the insolvency verification, which takes approximately 60 days. The U.S. Bankruptcy Code, but contains provisions which shorten the distance of the automatic stay if the debtor filed prior bankruptcies which were disregarded over the previous 12 months. If somebody registered one previous bankruptcy which was dismissed by the court, then the automatic stay just remains in effect for 30 days. If he registered two preceding bankruptcies within the past calendar year, the court won’t grant him an automatic stay.
Although filing for bankruptcy can provide debtors with an effective approach to reduce foreclosure from occurring, mortgage lenders may request the court to lift the automatic stay when preventing foreclosure hurts the lender’s financial interests. If, by way of example, the debtor’s income won’t allow him to make mortgage payments after his bankruptcy discharge, the court may raise the stay and permit the lender to waive (See References 1).