When consumers file for bankruptcy, the court stops creditors from taking legal action against them while it evaluates and assesses the situation before making its ruling. In all cases, this stops foreclosure. However, whether the foreclosure stays stopped depends on the type of bankruptcy filed and whether or not debtors stay the course in regard to the court’s ruling.
Can Our House Be Saved?
The riskiest bankruptcy for those seeking to avoid losing their home is Chapter 7. Since chapter 7 bankruptcy erases a consumer’s obligations to creditors, it makes the contracts with those creditors null and void. What this means is that the company that holds your mortgage no longer has a guarantee that you intend to pay it and may stand to lose a lot of money. Generally, those who file Chapter 7 have a lot of debt and not a lot of assets to show for it. However, in cases in which there are assets of significant value, the court may order that higher-priced possessions, including a house, be sold in order to help creditors recoup some or all of the debt. In other cases, the court may not order the sale of your home, but the mortgage company may take back the home because there is no longer an obligation for you to pay for it. Since the home technically belongs to the company that granted the mortgage until the home is paid in full, the home still belongs to the company and is theirs to take back unless you come to some sort of agreement.
Chapters 11 and 13, however, give consumers a chance to reorganize their debts and pay them off. Under these circumstances, since the mortgage is still being paid, filers may keep their homes. However, this is conditional on acting in accordance with the court order. So if consumers fall behind on their court approved and discharged payment plan, they can still lose their homes.