Chapter 7 bankruptcy can delay your foreclosure sale but it can’t stop it permanently. Unless you cure your default or negotiate a different solution with your lender, your house will eventually be foreclosed on even if you file for Chapter 7. Read on to learn more about Chapter 7 bankruptcy as well as your other options if you have a pending foreclosure sale.
(Find more articles about what happens to your home in Chapter 7 bankruptcy, here.)
When you file for Chapter 7 bankruptcy, the automatic stay prohibits your lender from going forward with the foreclosure sale. However, this is a temporary delay (discussed in more detail below). Even though it’s temporary, the stay provides you more time to cure your default or negotiate with your lender. If you no longer wish to keep the house, you can also use the extra time to look for a new place to live.
Learn more in The Automatic Stay and Foreclosure.
As we discussed, your lender can’t conduct the foreclosure sale as long as the automatic stay is in effect. However, the stay terminates upon the closing of your case. This means Chapter 7 will not delay foreclosure for very long because most cases are discharged and closed within a few months. To foreclose sooner, your lender can ask the court to lift the automatic stay during your case. If you don’t oppose the lender’s motion, the stay may be lifted in as little as couple of weeks.
Chapter 7 can’t permanently stop a foreclosure. However, here are some other options to save your home.
A loan modification is designed to permanently modify the terms of your original loan. Depending on your modification terms, it can change your monthly payment, interest rate, principal balance, or length of repayment. It will also usually wrap your outstanding arrears (amounts you are behind on) into the new principal balance. As a result, you will no longer be considered in default and the lender will not pursue foreclosure.
However, applying for a loan modification will not automatically stop a foreclosure sale. If your foreclosure sale date is approaching, do not rely on your pending loan modification to stop it. It is best to communicate with your lender about the status of both your loan modification and the foreclosure sale while your application is pending. If your lender intends to go forward with the sale, you can also file for bankruptcy to take advantage of the automatic stay while your application is in review.
Chapter 13 bankruptcy can stop a foreclosure sale and allow you to cure your mortgage arrears through a repayment plan. A Chapter 13 plan usually lasts three to five years so it gives you an opportunity to catch up on your mortgage payments over a longer period of time under the protection of the automatic stay. As a result, it is generally a better way to stop foreclosure and save your home than a Chapter 7. However, be aware that your lender can still foreclose by asking the court to lift the stay if you fail to make your regular mortgage payments as they come due during your Chapter 13. You can learn more about using Chapter 13 bankruptcy to save your home, here.