How Bankruptcy May Affect Foreclosure

In some situations, homeowners who are struggling to pay the mortgage may also be having trouble paying off other bills. With the debt piling up, a homeowner may opt to file for bankruptcy as a way out. While this may be a way to manage other debts, filing for bankruptcy to get rid of a mortgage could be a difficult decision for the homeowner, and depends on whether the homeowner wants to keep his home. Once the homeowner decides whether or not he wants to fight to keep the home, the question then becomes whether bankruptcy can save the homeowner from a foreclosure.

The answer to this question depends on the homeowner’s goal in filing for bankruptcy. Under some circumstances, filing for bankruptcy to discharge other large and unexpected debts, such as medical bills, can mean that the homeowner can get back on track financially and make mortgage payments on time. However, in other circumstances, even after filing for bankruptcy and having his debts discharged, a homeowner may not really afford to make payments on his home. For a homeowner who will continue to struggle, it is best to have the mortgage debt discharged along with all the other eligible debt as part of the bankruptcy.

In a situation where the homeowner wants to keep the home because the homeowner believes he can continue to make payments on time after filing for bankruptcy, the homeowner may reaffirm the mortgage debt. Reaffirmation of the mortgage debt means that even after other debts are discharged in the bankruptcy, the mortgage still remains owed, and is not discharged with the other debts.

For all homeowners, filing for bankruptcy delays or stays a foreclosure action until the bankruptcy proceedings are concluded. If the mortgage lender has already started foreclosure, the bankruptcy stops the lender from being able to force a sale of the homeowner’s property for a period of time. This may buy the homeowner some additional time to move out or work something out with the mortgage lender.

Additionally, a bankruptcy may wipe out a mortgage debt, but it does not extinguish or remove the mortgage lender’s lien on the property. Therefore, the mortgage lender may still file for foreclosure in order to force a sale of a home if the homeowner continues to live in the house after the bankruptcy and fails to make payments. However, in this case, the mortgage lender cannot seek a deficiency judgment after the sale of the home because the original debt is technically discharged as part of the bankruptcy.

Contact an Experienced Attorney

If you are facing foreclosure it is very important to contact an attorney as soon as possible. Speaking to an experienced foreclosure defense attorney can assist you in making an informed decision on whether or not you need to file for bankruptcy, and how that would affect your ability to keep your home. If you have a valid defense against foreclosure, you may be able to avoid bankruptcy. For more information, contact Louis S. Schwartz and his team at ConsumerLaw Pa.com.

Resources:

hib.uscourts.gov/resources/ReaffAgreements.pdf

law360.com/articles/551844/understanding-the-automatic-stay-in-bankruptcy