Can a Bankruptcy Really Stop Foreclosure?

People in Rockland County, New York may have heard, even on the television or radios, that a bankruptcy can save your home from a looming foreclosure. While such statements are true in a sense, it is very important that Rockland and Garnerville residents understand what is and is not being promised.

When a New York resident files either a Chapter 7 or a Chapter 13 bankruptcy, federal law ordinarily imposes what is called an automatic stay on all creditors and debt collectors which prevents them from taking further actions to collect a debt until told otherwise. This stay applies to financial institutions trying to foreclose on a person’s home, so a bankruptcy can temporarily stop a foreclosure, which might be beneficial to a family trying to re-organize their finances and save their home.

However, a bankruptcy does not wipe a foreclosure off the books. In fact, a lender often will simply wait for a bankruptcy to end and then go ahead and foreclosure, and a lender sometimes may even ask the court for permission to proceed with a foreclosure. The reason the lender can do this is that a bankruptcy absolves people of personal responsibility for a debt, but it does not mean a secured creditor has to let go of a lien on property like a house or a car.

Although not for everyone, some New Yorkers who want to try to keep their homes may consider filing a Chapter 13 bankruptcy. With a Chapter 13, a debtor may be able to get a repayment plan approved which would allow them to make mortgage payments and catch up on any delinquent payments. Furthermore, any type of bankruptcy may free up more money to make and even catch up on house payments by discharging other debts.