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Can Foreclosure Be Stopped by Filing for Bankruptcy and the Automatic Stay?


How Bankruptcy Affects Foreclosure Via The Automatic Stay

Bankruptcy can stop the foreclosure sale once filed. The bankruptcy code provides for an automatic stay once the bankruptcy is filed which stops the banks from continuing with the foreclosure sale while the bankruptcy case is pending. At the Law Office of Seni Popat, P.C. our Queens foreclosure defense lawyer can help you save your home from foreclosure.

When Does Foreclosure Begin?

Facing foreclosure can be nerve-wracking, but there may be alternative paths available. A foreclosure occurs when a homeowner must forfeit rights to their property due to failure to comply with mortgage payments.

Foreclosure is not a quick process, as there are numerous steps that must be taken in order to put it into motion.

  • First, it must be over 120 days since the last payment was made before your home can be foreclosed in New York.
  • Secondly, the lender must deliver a notice to the owner 90 days prior to the foreclosure. The notice will include helpful information on how to resolve the current debt, and list housing counseling services.

It is important to be aware that the period of 120 days without payment and the 90-day foreclosure notice may run concurrently.  If the debt is not resolved by the end of the notice period, the foreclosure complaint will be filed and a settlement conference is scheduled.

A judgment in favor of the lender means the home will be foreclosed on and will be placed for sale. The good news is that the process needn’t follow this route. After receiving the 90-day notice, a person can investigate filing for bankruptcy in order to halt the foreclosure either temporarily or permanently.

Foreclosure and Filing for Bankruptcy

Bankruptcy can be used to stop or slow down the process of foreclosure. This will be determined by which chapter of bankruptcy is chosen.  A person, depending upon income and expenses, can either qualify for Chapter 7, Chapter 13, or both, however, they may only petition under one. Once the person enters the petition, they are granted an automatic stay.

How Chapter 7 Affects Foreclosure

Filing for Chapter 7 means that none of the person’s creditors may continue to collect debts during this process. Due to this, the lender cannot foreclose on the house during a pending bankruptcy. Typically this process will take about four months, allowing the person time to remain in the comfort of their home while they assess their finances. With Chapter 7, it can stop the foreclosure sale and prevent a future deficiency judgment. Also, it may be able to help wipe out other debt that you may have with certain limitations. Unfortunately, this is not a fail-safe plan, as the lender may petition the court to lift the automatic stay during the pending case. 

How Chapter 13 Affects Foreclosure

If a person is able to qualify for a Chapter 13 bankruptcy, they may also retain their home. A Chapter 13 petition creates a payment plan for the person relieving them of their debts over a period of three to five years. The homeowner may include their home loan in this plan, as long as it is financially feasible for them to continue to make payments while also compensating for the missed months of payments. Since home loans are secured loans in which the debtor has put up collateral, the payment plan would include the total value. This allows the person to not only remain in their home but also to keep the property they have placed as collateral. After completion of the plan, it must be heard and approved by a bankruptcy judge. Providing that the appointed third-party trustee ensures that the debtor is following the plan accordingly, the person will continue to reside in their home.

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Contact our offices at (718) 340-3385 if you or someone you know is facing foreclosure and may need to file for bankruptcy. Our foreclosure defense attorneys in Queens are ready to help during a free case evaluation.

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