Jeffrey M. Rosenblum, P.C.
A Fresh Start

Using bankruptcy to stop or delay foreclosure

If a New York homeowner has received a notice of default from a mortgage lender, it likely means that the lender is beginning the foreclosure process. One strategy to attempt to stop the foreclosure is to file for bankruptcy. However, it may only have a limited impact on whether or not the lender is able to continue with the foreclosure proceeding.

Although those who file for Chapter 7 bankruptcy may be eligible for an automatic stay of a foreclosure, it is only in effect for as long as the court says it is. A judge may grant a creditor's request for relief during the bankruptcy process. Even if such a request is not granted, the foreclosure process may begin again as Chapter 7 does not discharge secured debts such as a home loan.

Those who file for Chapter 13 bankruptcy may have a better chance of negotiating a new payment plan with creditors. Once a payment plan has been approved, both the debtor and creditors must abide by its terms. Getting a mortgage lender to agree to a new payment plan may make it possible to repay past due debt without losing the home. However, the agreement is only good as long as the debtor follows through with the plan.

Bankruptcy may be a viable tool for those who are facing financial difficulties. Although it may not stop a foreclosure, a stay could give a homeowner enough time to negotiate a payment plan with a mortgage lender. It may also be helpful in getting other types of debt such as credit card debt discharged in a relative short period of time. Those who wish to use bankruptcy to obtain debt relief may wish to talk to an attorney who may be able to offer advice tailored to a client's unique financial situation.

Source: Realty Trac, "Truth about bankruptcy foreclosure ", December 17, 2014

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