Press Release

The Effects of Bankruptcy on Foreclosure

by Sahaar Ann Azariah, Esq. of STONE HAVEN LAW GROUP, LLC

Rancho Cucamonga, California, July 6, 2009- Bankruptcy creates an automatic stay that serves to stop, or put a hold on, all legal actions and proceedings that a debtor is facing.  This includes a foreclosure proceeding.  To this end, bankruptcy is an intriguing option to many homeowners facing foreclosure, as a mechanism to stop the home foreclosure and eliminate or reorganize their other debts. 
The most common and important question we are asked is how long the foreclosure process is stopped for.  The answer to this depends on the particular chapter of bankruptcy a debtor will be filing for.

A Chapter 7 bankruptcy, also referred to as "liquidation," completely eliminates all of a debtor's legal liability to pay unsecured debt. Unsecured debt includes debt from credit cards, medical bills, and unsecured personal loans.  If a Chapter 7 debtor is facing foreclosure, the bankruptcy will temporarily halt the foreclosure process until one of the following occurs: the bankruptcy process is completed, or the foreclosing lender gets the judge to lift the automatic stay.  Unfortunately, if a borrower is far behind in their payments, and they do not have enough income to make the payments if the debt is reaffirmed, this relief can be granted immediately.

A Chapter 13, on the other hand, can stop a foreclosure proceeding permanently.  A Chapter 13 bankruptcy consolidates debt and reorganizes it into an affordable monthly payment plan approved by the court. In comparison to Chapter 7 bankruptcy, Chapter 13 does not completely eliminate a debtor's unsecured debt and requires a debtor to repay a portion of or all of the debt. However, the debtor is able to pay off their debt in affordable monthly payments over a period of three to five years, as determined by the court depending on monthly income, expenses, and assets. 

A Chapter 13 is also referred to as the “Wage Earners” bankruptcy because a debtor must be able to make a reasonable payment on their repayment plan, and stay current on their ordinary monthly payments.  However, as long as the debtor remains on the repayment plan and does not default, the foreclosure proceeding will be permanently terminated, and the debtor will come out of the bankruptcy with just their monthly mortgage payments.

Bankrupty is a very serious step, with enduring consequences, but can provide debtors relief from the foreclosure process. Since both foreclosure and bankruptcy are very important and complicated procedures, please consult an attorney before moving forward.  The attorneys at the Stone Haven Law Group can be contacted for a free initial consultation at 1 (877) 376 – MODIFY (6634), or a must visit at http://www.stonehavenlaw.com could be the next best option.

e-mail:  info@stonehavenlaw.com

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