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Can Bankruptcy Stop Foreclosure


If you are in the middle of foreclosure proceedings, you may be desperate to get back on track and stay in your home.  Bankruptcy, which offers a way to have some or all of your debts discharged, may seem to offer a way out.  However, before you declare bankruptcy, you need to be well-informed about the results of each type of bankruptcy on your foreclosure.  You should also know how bankruptcy and foreclosure can affect your credit score.

Chapter 7 Bankruptcy

If you are filing for Chapter 7 bankruptcy, you will have most types of debts completely discharged.  If your mortgage has not yet entered the foreclosure process, can bankruptcy stop foreclosure before it even begins?  The answer is yes, and most Chapter 7 bankruptcy filers can stay in their homes.

However, you may be wondering: if foreclosure proceedings have already begun on my home, can bankruptcy stop foreclosure?  Whenever you file, creditors will be told immediately to stop pursuing you to pay your debts, and this will give you a short time (usually 3-4 months) to stay in your house.

Unfortunately, if you file for Chapter 7, bankruptcy will not stop foreclosure proceedings on your house permanently.  Your loan documents also included a notice that your house was security for your home loan and that the bank could impose a lien.  While some debts can be written off, liens on property cannot be written off during a Chapter 7 bankruptcy.

There is one other way that the question of “can bankruptcy stop foreclosure” can be answered with a “yes” during Chapter 7 bankruptcy.  If you can make a deal with your lender, you may be able to stop foreclosure proceedings.  Always ask your mortgage lender about your options to stay in your home.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy allows you to restructure your debts rather than discharging all of them.  Can bankruptcy stop foreclosure if you use Chapter 13?  It can depend on how your home is financed and what mortgage you are having difficulty paying.

 Can bankruptcy stop foreclosure if I can't make payments on my first mortgage?  Yes, Chapter 13 bankruptcy can stop foreclosure if you can make payments and pay off the late payments according to your bankruptcy plan.

 What about second or third mortgages?  Can bankruptcy stop foreclosure if I'm late on one of those?  Your second or third mortgage may be unsecured, and if so, the court may not require you to pay them back at all.

Effects of Foreclosure and Bankruptcy on Your Credit Score

If you are potentially going through both bankruptcy and a foreclosure, you may wonder what the impact will be on your credit score.  Bankruptcy and foreclosure are two of the worst things that can happen to your credit score, and depending on the kind of bankruptcy, the black mark stays on your credit report for 7 years (Chapter 13) or 10 years (Chapter 7).  

Bankruptcy is the worst single event that can happen to your credit score, resulting in an immediate drop of 130-240 points.  Foreclosures or short sales make your credit score drop 80-160 points.  Consulting a bankruptcy lawyer or your mortgage lender may help you to better understand the impact of bankruptcy or foreclosure on your credit score.

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