Can Filing Bankruptcy Stop Foreclosure – Legal Provisions You Need To Know

There are a lot of other options you can and should explore before you finally settle in on bankruptcy as a means to stop foreclosure. You should see it as a last resort because the judge is not likely to be very friendly towards people who file for bankruptcy the moment things do not want to go their way.

You can try for a reinstatement of your mortgage loan or a restructure first, or you could attempt to refinance the mortgage or sell the home to someone else before the foreclosure sale date. A short sale is definitely an option if you can find another credit institution to carry the weight on your behalf, or you can try walking away on a clean slate after giving the home back to the lender through a deed in lieu of foreclosure.

Certainly by the time you get to the foreclosure part of your thought process, you want to have tried everything else on your slate. You see, the Bankruptcy Reform Act of 1978 was put in place because folks had started to abuse this golden opportunity and needed to be stopped. Amended in ’84 and ’86, it still birthed the Bankruptcy Abuse and Consumer Protection Act, signed into law in April 2005. Someone is certainly doing everything they can to see that it is more difficult for debtors to file for bankruptcy under Chapter 7 of the bankruptcy code.

With Chapter 7, things would have been so much easier because you could liquidate or have the mortgage lowered in exchange for you forfeiting some assets. Technically, this is more or less a forgiveness of you pecuniary sins and you get to keep the home – talk about stopping foreclosure in its tracks! But if you had to file under Chapter 13 of the code, you are still going to have to pay off all the monies that you owe to the mortgage firm, except at a set lowered amount per month. Usually, Chapter 13 gives you about three to five years to make up. It is something, but wouldn’t you really have preferred Chapter 7? I know I would.

Even when the law was passed, folks didn’t really like it that much. Several leading consumer groups and bankruptcy attorneys thought it was a farce – a joke – because it really made life harder for a lot of homeowners. Naturally, the credit card and retail industries were all for it. It made it possible and easier for them to foreclose on various properties. That notwithstanding, it is still a window or opportunity for you to stop foreclosure, especially when you have tried all of the other options upstairs and failed.

There is a catch, though, if you are really considering filing for bankruptcy to stop the foreclosure proceedings before they ever set off. You are going to have to take a number of credit counseling sessions with a certified and experienced credit counselor before you may even start the filings. If you fail to complete the counseling program, your movement gets thrown out of court and you are right back where you started. It may be a bit onerous for a low-income earner, but if it’s what it takes to save your home and livelihood, you have got to do what you have to do.

In however small a way, bankruptcy does help; you just need to make sure that it really is the only remaining option before you start with it.