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Can bankruptcy help when you receive a foreclosure letter?

On Behalf of | Jun 1, 2022 | Bankruptcy

Having your own home isn’t just the American dream. It is also an important step for those who want long-term financial stability. Unlike a monthly rental payment, which can increase with little warning, what you pay for your mortgage every month will typically remain the same regardless of how the market fluctuates.

More importantly, a portion of your payment every month goes to the principal balance that you owe, adding to your share of equity and therefore, how much of the home you own. That equity may be one of the biggest contributing factors to your overall personal worth.

Homeowners can lose their properties

No matter how long you have made payments on the property or how much you have invested in its maintenance and improvements, you can lose your interest in your home if the lender forecloses because you missed payments.

Foreclosure is the legal process by which a mortgage lender reclaims a home that serves as collateral property. If you recently received a foreclosure notice from your mortgage lender, then you may frantically want to protect your home. Can bankruptcy help you stop foreclosure proceedings?

Bankruptcy helps by offering an automatic stay

As soon as an individual files for bankruptcy, the courts issue an automatic stay. Creditors have to cease collection activity, including pending lawsuits.

Creditors that finance secured debts, like mortgage lenders, will have the option of going to court to lift the automatic stay. However, the automatic stay can provide a brief respite from aggressive collection activity that gives you an opportunity to plan a better, more permanent response.

Chapter 13 proceedings can help you modify a loan

Any lender may be more cooperative with a borrower or debtor when bankruptcy looms on the horizon. However, in Chapter 13 proceedings, lenders are often inclined to work with borrowers to modify their loans.

You may be able to adjust the duration of the loan, the monthly payment amount and other terms that will make repayment more achievable for you. The more equity you have accrued in the home, the stronger the incentive to protect that investment in times of financial hardship. Learning more about your options for pushing back against a foreclosure attempt can help you regain control over your financial circumstances.