How to Avoid Foreclosure through Bankruptcy

If your mortgage lender has notified you of a pending foreclosure on your home, you may be struggling to find a way to stop the process. Many families struggling with debt consider bankruptcy to save their home, which may or may not be the solution that they need. For the best chance of saving your home and starting a positive financial future, you must understand how bankruptcy can help you.

There are two main types of bankruptcy for individuals (as opposed to businesses.) The first, Chapter 7, typically eliminates all of your debts without a requirement that you repay any of it. Upon filing for Chapter 7 bankruptcy, you gain immediate protection from the "automatic stay" provision. This rule requires that all creditors cease collections activity until the case is completed. This protection includes your mortgage company.

The "automatic stay" can delay a pending foreclosure. However, it will not automatically stop a foreclosure completely. In fact, your lender can petition the court to proceed with a foreclosure even with the bankruptcy proceedings underway. It's difficult to know what the outcome of that request might be. Still, Chapter 7 bankruptcy will typically provide you around 60 days of protection during which you can be taking other actions to stop the foreclosure, including selling your home and negotiating with your lender. This time can be extremely helpful to resolving the issue positively.

Chapter 13 is the other type of bankruptcy. It differs from Chapter 7 in that it requires you to pay at least some of your outstanding debt. If your main goal is avoiding foreclosure, Chapter 13 can be a good choice. The Chapter 13 process establishes a payment plan between you and your creditors. This gives you a chance to work in a structured way with your lender to find an alte
ative to foreclosure that works for both parties. You may be allowed to process a loan modification on the mortgage, which could reduce the monthly payments significantly. Regardless, Chapter 13 also allows you the protection of the "automatic stay," which can again provide time to find other alte
atives. Still, some homeowners find even after their debt payments are reduced that they have difficulty making payments.

The best way to evaluate how Chapter 7 or Chapter 13 bankruptcy can help you is to speak with an expert. A qualified atto
ey can evaluate your income, debts and situation and recommend a plan of action that can eliminate debt that keeps you from moving forward.