Automatic Stay and Bankruptcy

The thought of bankruptcy and foreclosure may send chills down your spine and imply financial failure. If your home is in foreclosure because you cannot afford the payments on it, there may be hope for you. Though adding a bankruptcy on top of a foreclosure may seem like hitting rock bottom, it may give you just the boost you need to stay in your home and bounce back from financial ruin quicker than you could have thought.

Bankruptcy's Affect on Foreclosure

Depending on the state you live in, your home could take between 2 and 6 months to go into foreclosure after you've stopped making mortgage payments. If you've tried modifying your mortgage, working out a forbearance plan with your lender and every other option without success, you may feel like foreclosure is your only choice. However, filing personal bankruptcy may stop your foreclosure.

When you file for personal bankruptcy, the judge will grant you an automatic stay, which initiates the "stop foreclosure process," and foreclosure proceedings against your home will cease until your case is finalized or the judge lifts the stay. All of the past-due mortgage payments, late fees and interest you owe to your mortgage company can be included in your bankruptcy filing, allowing you to repay part or all of those late payments over the course of several years. If, however, you qualify for chapter 7 bankruptcy, you can roll your late mortgage payments into your bankruptcy filing without having to repay any of the late fees or unpaid debt in a multi-year installment plan. To find out if you qualify for chapter 7 bankruptcy, you must pass the "Means Test" in your state. Furthermore, any other qualifying debts, such as medical bills and credit card balances, can also be included in your bankruptcy as well, freeing up income in your budget so that you can afford your mortgage payment again.

So long as you resume making your mortgage payments on time every month following your bankruptcy, you should be able to stay in your home without fear of foreclosure or lawsuit for past payments. However, before you make a decision to file for bankruptcy, you should speak with a bankruptcy lawyer, as bankruptcy and foreclosure rules vary by state and over time.