Bankruptcy Law Blog

Thursday, February 18, 2016

Stopping Foreclosure with a Bankruptcy Filing

Can I save my home by filing for bankruptcy?

Since the Great Recession of 2008, many individuals have had problems keeping up with their mortgage payments. In some cases, mortgage lenders have cut deals with borrowers by modifying the loan or agreeing to a short sale. However, most homeowners are tied to the terms of the mortgage contract and the provisions regarding default and foreclosure.

What is a mortgage foreclosure?

A foreclosure occurs when a homeowner fails to make full principal and interest payments on a mortgage. If a borrower misses a payment and does not pay it within one month, he or she is in "default." The lender will notify the borrower that the payment must be made in full. If the mortgage remains delinquent after 3 to 6 months, the lender can initiate a foreclosure proceeding, which allows the lender to evict the homeowner, seize the property and sell it at a public auction.

Ultimately, a foreclosure will cause long-lasting damage to your credit rating. There are alternatives to foreclosure, including loan forbearance or a deed in lieu of foreclosure, where title to the property is signed over to the lender. However, if these arrangements are not available, a borrower may be able to stop the foreclosure process by filing for bankruptcy.

How Filing for Bankruptcy Can Stop a Foreclosure



The new bankruptcy laws make it difficult for an individual to file a Chapter 7 Bankruptcy. However, a Chapter 13 Bankruptcy petition may enable you to set up a plan to pay the mortgage payments that are in arrears. The homeowner and lender can agree to a time period for the repayments to be made, but the delinquent payments must be made simultaneously with the current payments. Provided that all of the required payments are made according to the repayment plan, you can avoid foreclosure. In some cases, a Chapter 13 filing may also eliminate payments of second and third mortgages as bankruptcy courts may deem these to be unsecured debt, depending on the amount of equity in your home.

Although a bankruptcy filing may stop a foreclosure, it is not a silver bullet, and it can seriously damage your credit score. If you fail to make payments that have been agreed upon, the lender can still foreclose on the property. Ultimately, deciding to go bankrupt is a serious decision that requires the advice of a qualified attorney. 

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Padgett and Robertson assist clients with Bankruptcy, Personal Bankruptcy, Consumer Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy and The New Bankruptcy Law in Mobile, Alabama and throughout southern Alabama. Alabama State Bar Association Regulations require the following: "No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers." 11 U.S.C. 528 of the U.S. Bankruptcy Code requires the following: "We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.”

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