When your finances are going south, it’s about salvaging what you can and settling the rest so you can get a fresh start. And, of course, one of the biggest things you probably want to salvage is your home — especially if you have equity in the property.
Luckily, there are things you can do during a bankruptcy filing that can help you save your home. It’s still going to take some work, but with the right strategy, your family can stay put, so you can move forward without moving out.
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Using an automatic stay to stop a foreclosure
When you file for bankruptcy — whether you’re filing for Chapter 7 or Chapter 13 — one of the first things that happens is that an automatic stay is placed on your debts. This freezes any and all activity on those accounts — you can charge anything extra, but your creditors also can’t take any action against you.
Fact: The automatic stay applies to foreclosure proceedings from your lender, as well as proceedings from an HOA.
That means that even if your lender already started to foreclose, the process is stopped until your bankruptcy filing is complete. This gives you time to take steps to save your home. What’s more, at a minimum, once your bankruptcy is completed, you’ll have more money available to make arrangements to avoid foreclosure because you won’t be making all those payments on all of your other debts.
So when does the automatic stay stop?
Upon completion of your bankruptcy filing, the automatic stay is removed.
For a Chapter 13 bankruptcy, this happens when you make the last payment on your court-ordered payment schedule and the court discharges your remaining balances. Since Chapter 13 can take up to 3-5 years, this gives you plenty of time to come up with a strategy to save your home.
For a Chapter 7 bankruptcy, your filing is closed once all of your assets are sold and the remaining balances on your debts are officially discharged. Now, you may be asking why your home wouldn’t be liquidated — well, that’s a special path you can take in some states.
There are certain qualifying standards that you and your home must meet to use this option. At a minimum, you must be 100% current with your payments and have a good payment history with your mortgage lender. It can be harder to negotiate and navigate that process though, so it’s advisable to have a lawyer.
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Article last modified on April 26, 2021. Published by Debt.com, LLC