Can Filing Bankruptcy Stop Foreclosure on Your Home?

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Julie O'Bryan  |  07-11-18 | 1:42pm

If you've recently lost your job or suffered a financial setback, you may be facing foreclosure on your home. The economy is no respecter of future plans, and it's usually the most expensive bills that suffer the most. You may be wondering if you can avoid foreclosure at all. You can if you're willing to file bankruptcy. At O'Bryan Law Offices, we can inform you of your options and help you take necessary action to protect your home.

In this article, we'll show how bankruptcy impacts foreclosure, and how you can stop foreclosure both temporarily and permanently.

How Foreclosure Works in Kentucky and Indiana

Your lender doesn't really want to foreclose on you. It's an expensive, painful process for everyone. Both Kentucky or Indiana are judicial foreclosure states, meaning foreclosure requires court action. So usually, your lender will wait until after the third or fourth consecutive missed payment, accompanied by numerous warning notices, before proceeding.

The lender also has to deal with reporting and notice requirements before they can take control of and auction off your home. It can take up to a year before you lose your house, but the process usually takes just a few months. Don't assume you have plenty of time. Get legal help ASAP.

Filing Chapter 7 Bankruptcy to Stop Foreclosure

True bankruptcy protection falls under Chapters 7 and 13 in the U.S. Code. If you qualify for Chapter 7, you can discharge some or all of your debt load. It also provides for an automatic stay of all legal proceedings, including foreclosures, that goes into effect immediately. 

However, the lender can then file a Motion to Lift the stay on your foreclosure, and probably will. Because a Motion to Lift is often hard to fight, Chapter 7 bankruptcy will probably only delay foreclosure. The only way to avoid a Motion to Lift is to catch up on your payments, which may be possible if you don't have to worry about your other debts.

The stay lifts automatically when the court grants your discharge of debts, which takes about three months. However, it usually takes a lender a while to restart the foreclosure process, so your stay may actually last somewhat longer.

Filing Chapter 13 Bankruptcy to Stop Foreclosure

Filing for Chapter 13 bankruptcy is another option available for homeowners. Unlike Chapter 7, it doesn't discharge all debts. You will have to prepare a repayment plan for your creditors and have it approved by your bankruptcy trustee. As with Chapter 7, you'll get an automatic stay when you file, and it will last as long as the bankruptcy proceedings are in effect. However, you do have to prove you have enough income to not just keep up with your current monthly payments, but also to pay back your arrears over the course of 60 months maximum. If you can meet these conditions, you may be able to avoid foreclosure.

What Is a Lien Strip?

Under Chapter 13, in both Indiana and Kentucky you may have one more option for avoiding foreclosure. A lien strip is just what it sounds like: it strips away any mortgages and other liens beyond your primary mortgage. If a second or subsequent mortgage was driving the foreclosure, this can allow you to save your home.

This may not work unless your home has declined in value. If it has, and all your equity is in the first mortgage, then any other mortgages would count as unsecured debt and would be discharged.

An Experienced Bankruptcy Attorney Can Help You Stop Foreclosure on Your Home

If you facing foreclosure in northern Kentucky or southern Indiana, we can help. Bankruptcy laws are meant to help you. It can not only stop foreclosure on your home, but also give you the peace of mind you need. Call O'Bryan Law Offices today to learn more.

Contact O'Bryan Law Offices Today