Bankruptcy to stop foreclosure

For the millions of people across the country facing serious financial challenges, the prospect of losing one’s home can be very real and troubling. The only thing many Florida families know about foreclosure is the information their lender provides them with once the process begins, and individuals often feel as though they have few options to keep their homes. Chapter 13 bankruptcy can be used to delay and even stop foreclosure in some instances; however, it’s important that homeowners understand how personal bankruptcy works and its limitations in addressing issues like foreclosure.

Given that Chapter 13 bankruptcy involves using a payment plan to eliminate personal debt, it is often best suited for individuals that have a reliable source of income and some assets. As such, filing for Chapter 13 bankruptcy and complying with the terms of one’s repayment plan can actually halt the foreclosure process. Foreclosures are stopped by bankruptcy because no action can be taken against the borrower at that point without first being approved by the bankruptcy court. Even so, Chapter 13 should only be regarded as a step to temporarily delay the foreclosure process until effective loan modifications can be implemented.

According to one Florida Law Review study, negotiating a loan modification with a lender is much more effective than bankruptcy to stop foreclosure proceedings. Such steps are only successful, however, if lenders are willing to modify debts in favor of borrowers. Over 9 million people across the country owe 25 percent or more on their homes than the properties are actually worth. And because lenders do not always agree to modify home loans, many do turn to bankruptcy as a way to stay in their homes. It must be noted, though, that repeatedly filing for bankruptcy to avoid foreclosure is considered a federal offense.

Source: Huffington Post, “Bankruptcy: The Foreclosure Kill Switch,” Jorge Newbery, April 22, 2014