Many homeowners who have fallen behind on their mortgage payments make the mistake of assuming that bankruptcy is part of the foreclosure process. However, it’s important to note that foreclosure and bankruptcy aren’t synonymous or interchangeable terms. A foreclosure deals specifically with debts pertaining to your home, while a bankruptcy covers all unpaid debts. The confusion arises once a homeowner is in the foreclosure process, because the two terms can intertwine. In other words, bankruptcy can help postpone the foreclosure process, but it might not end it.
Bankruptcy and Foreclosure
Once a homeowner is 90 days late on a mortgage payment, their bank will likely begin the foreclosure process with the county clerk. This only happens if the bank has already tried to legally extract payments from you and has failed. In this case, you will be notified of the default.
When homeowners are facing the threat of foreclosure, they often forget that their home doesn’t have to be in default to begin the bankruptcy process. You can file for bankruptcy at any time! The reason bankruptcy is so beneficial is because if you file before your home is auctioned, you are given rights that protect you and your property. In other words, once you file for bankruptcy, your debtors are prohibited from pursuing your outstanding debts.
This is through what is known as the “Automatic Stay.” Until that stay is lifted, you and your family can stay securely in your home. Usually, the stay will be in place until your bankruptcy case is heard in court and they decide the future of your debt. If you’re unsure about your options, speaking with a Dallas bankruptcy attorney can help you determine whether Chapter 7 or Chapter 13 is right for you. If you can manage to repay your debts in the long-term, Chapter 13 would be a great option, whereas Chapter 7 is reserved for those without the financial means to repay.