Facing financial difficulties can be overwhelming, especially when you’re at risk of losing your home to foreclosure. Understanding the foreclosure process and how bankruptcy might help you protect your home can make a significant difference in navigating this challenging time.

Here’s an explainer of the foreclosure and bankruptcy process and how they may impact your financial future.

What is Foreclosure?

Foreclosure is the legal process a lender uses to recover the balance of a loan from a borrower who has stopped making payments. If you fall behind on your mortgage, your lender can take legal action to repossess your home. The timeline and details of foreclosure vary depending on the state, but the steps typically include:

1. Missed Payments: After missing one or more payments, your lender will contact you, usually by mail or phone, to discuss your missed payments and options to catch up.
2. Notice of Default: If payments continue to be missed, the lender will issue a formal notice of default, which means you are officially in breach of the loan terms.
3. Pre-Foreclosure: This is the period after the notice of default but before the property is sold at auction. During this time, you may still have the opportunity to negotiate with your lender or explore options like a loan modification or selling your home.
4. Foreclosure Sale: If you cannot resolve the default, the property will be sold at a public auction to recover the debt.
5. Post-Foreclosure: If the property is sold, you may need to vacate, and the lender will seek to recover any remaining debt if the sale does not cover the full loan amount.

How Can Bankruptcy Help?

Bankruptcy can offer some relief from foreclosure, depending on your situation. Here’s how the two common types of bankruptcy — Chapter 7 and Chapter 13 — work and how they might help if you're facing foreclosure:

Chapter 7 Bankruptcy

• Liquidation of Assets: In a Chapter 7 bankruptcy, many of your assets could be sold to pay off creditors. However, depending on your state's laws, you may be able to keep your home through what’s called a "homestead exemption."
• Temporary Halt on Foreclosure: Filing for Chapter 7 triggers an "automatic stay," which immediately stops all collection actions, including foreclosure. This is temporary and usually lasts a few months, but it can give you time to plan your next steps.
• No Long-Term Fix: While Chapter 7 can delay the foreclosure, it won’t help you catch up on missed mortgage payments. If keeping your home is your primary goal, Chapter 13 might be a better option.

Chapter 13 Bankruptcy

• Repayment Plan: Chapter 13 bankruptcy allows you to reorganize your debt into a 3- to 5-year repayment plan, giving you time to catch up on missed mortgage payments while keeping your home.
• Automatic Stay: Like Chapter 7, Chapter 13 also initiates an automatic stay, stopping foreclosure proceedings as long as you make your payments according to the plan.
• Keep Your Home: This type of bankruptcy is particularly helpful if you have a steady income but need time to get back on track with your mortgage.

The Foreclosure-Bankruptcy Balance

While bankruptcy can provide temporary relief from foreclosure, it’s important to understand how both processes work and how they can affect your financial situation in the long term. Chapter 7 may delay foreclosure but doesn’t provide a path to keeping your home unless you're able to pay off the mortgage through other means. Chapter 13, on the other hand, can help you stay in your home by catching up on payments over time.

If you're facing foreclosure, seeking advice from a bankruptcy attorney is essential to explore your options and determine the best course of action for your unique situation.

Schedule a Consultation with the Law Office of James O'Mara today to get the expert guidance you need to protect your home and financial future.