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If a Homeowner Files for Bankruptcy, Can They Stay in Their Property and Avoid Foreclosure?

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Facing foreclosure is a terrifying prospect for homeowners. The threat of losing one’s home is a daunting one and something that most homeowners are desperate to avoid.

A common question for Birmingham homeowners in this situation is whether filing for bankruptcy is a way to avoid foreclosure and stay in their house. The short answer is that in some cases filing for bankruptcy will let a homeowner stay in their home and, at the very least, it can serve as a way to stall foreclosure proceedings.

To help homeowners understand how filing for bankruptcy can impact an impending foreclosure, here’s a brief look at how bankruptcy proceedings impact the foreclosure process.

Issuance of an Automatic Stay

Perhaps one of the most important procedural steps that homeowners need to be aware of is the automatic stay. Whenever an individual files for bankruptcy, the courts issue an automatic stay that prevents creditors from collecting debts. This stay covers foreclosure proceedings and means that the mortgagee must stop all foreclosure activities.

Even if a lender has already scheduled a sale, this will be postponed. It is important to note that the lender can file a motion to have the stay lifted and, if it’s successful, the lender can proceed with the sale. However, even if this motion is successful, the sale will likely be postponed for some period of time.

Notably, if a sale is scheduled and you’re under time pressure to avoid it, you can file an emergency bankruptcy petition that will initiate the automatic stay. You will then have 14 days to file the complete paperwork required to initiate the bankruptcy proceedings.

It’s also worth noting that if your home has already been sold in a foreclosure sale, you’ve lost ownership of it and the stay will have no effect.

Finally, homeowners need to understand that the stay will not have a substantive effect on the foreclosure proceeding. It doesn’t stop the clock on notice requirements or change the posture of the foreclosure. It can, however, effectively stall the process and give you more time to negotiate with the lender, pay back the amount owed, or find somewhere else to live.

Using Chapter 13 to Avoid Foreclosure

Beyond the stay, there are some circumstances where homeowners can avoid foreclosure by filing for bankruptcy. As a general rule, to do this it’s necessary to file a Chapter 13, rather than a Chapter 7, Bankruptcy.

Chapter 7 Bankruptcy, often known as liquidation bankruptcy, involves selling assets to pay off debts. Generally, under Chapter 7 there are no exemptions to protect your home from being sold to pay creditors. As a result, in most cases, Chapter 7 can serve as a way to slow down the foreclosure process and to get some more time in your home, but it won’t let homeowners avoid foreclosure and stay in their homes permanently.

In contrast, Chapter 13 bankruptcy, or reorganization bankruptcy, lets individuals keep their property as long as they comply with a repayment plan. Chapter 13 involves a court-ordered repayment play that usually lasts for 3-5 years. In most cases, homeowners are required to make regular monthly mortgage payments and to make late payments to the lender pursuant to the repayment plan. However, as long as they’re able to do so, they can avoid losing their home.

The key takeaway here for homeowners is that Chapter 7 is not a good choice when attempting to avoid foreclosure. Chapter 13 bankruptcies, on the other hand, can offer a way to stay in your home as long as you’re able to make monthly payments and keep up with the repayment plan.

Sell Your Birmingham Home Fast

Foreclosure proceedings are complicated and stressful and something that homeowners want to avoid whenever possible. If you’re concerned about losing your Birmingham home to foreclosure, it’s a good idea to look for options to avoid foreclosure entirely.

Selling your home to a cash buyer can be a good way to get cash fast and walk away from your home. At Home Buyers Birmingham, we buy houses as in, no matter the condition. We’ll give you an offer within 24 hours of seeing your home and can close in as few as seven days after that. The process is quick, easy, and stress-free.

If you’re worried about losing your Birmingham home to foreclosure, keep in mind that you do have options. Learn more or get your cash offer by completing this online form or by calling our team at (205) 687-0604.

Home Buyers Birmingham
1821 11th Avenue South Suite #55331
Birmingham, Alabama 35205

If a Homeowner Files for Bankruptcy, Can They Stay in Their Property and Avoid Foreclosure?

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