Bankruptcy Does Not Guarantee the Avoidance of Foreclosure

The failure to stay current on one’s mortgage payments can result in the debtor’s lender filing a foreclosure action against them. Foreclosures force New York residents out of their homes and impose significant burdens on those who are already facing financial troubles. As has previously been discussed on this blog, bankruptcy can, in some cases, provide individuals with the opportunity to stop the foreclosure process.

This is due to the automatic stay. The automatic stay is a component of the bankruptcy process and it prevents lenders and collection agencies from advancing their efforts to collect on past due loans and accounts during the bankruptcy proceedings. It is available under both Chapter 7 and Chapter 13 bankruptcy and it can hold off foreclosure actions for a few months during the bankruptcy proceedings.

The automatic stay does not, however, prevent foreclosures. In a Chapter 13 bankruptcy process, a debtor would have to create and have approved a repayment plan that sufficiently paid back the mortgage lender for the borrower’s past and future payments on the loan. If the debtor cannot manage such a payment schedule, they may end up losing their home despite their bankruptcy action. In a Chapter 7 bankruptcy process, a debtor may have their debts forgiven, but the bankruptcy process does not eliminate any liens that the debtor’s mortgage lender places on the debtor’s home.

As every foreclosure scenario is different, readers of this blog who wish to explore bankruptcy as a means to avoid foreclosure are encouraged to discuss their cases with bankruptcy attorneys in their communities. Lawyers who work in the bankruptcy and foreclosure fields are well-suited to advise their clients on the current state of the law and provide them with useful advice that is pertinent to their clients’ unique cases.