You may have heard people say that bankruptcy is one way to stop foreclosure. If they get the foreclosure notice in the mail, they assume they can just declare Chapter 7 or Chapter 13 to put an end to it.
This is a misconception. Bankruptcy, of either type, does not stop foreclosure.
Instead, all it does is delay the process. In the court’s eyes, the bankruptcy case is more important and must get resolved first. They will then put an automatic stay on the foreclosure as soon as the bankruptcy is filed.
This is a tactic that some borrowers use to keep their homes. However, most bankruptcy cases get resolved in a few months. At that point, the court will then authorize the lender to proceed with the foreclosure yet again. The process is certainly not over. It’s often a process that takes months anyway, so this just stretches it out a bit.
Now, some people can use bankruptcy as a tool that helps them work toward keeping their home. For instance, perhaps the Chapter 13 filing gives them an affordable repayment plan for their debt. They can then afford to make their mortgage payments again, and they get caught up on the payments that they missed. In the end, they save the house, but it’s not the bankruptcy filing alone that did it.
It is important to understand exactly how this process works on both ends. It is often more complicated than people assume, and there can be extra complications when borrowers buy into some of the more common myths and misconceptions that exist.