Can Bankruptcy Stop Foreclosure Sale?

You may be relieved to know that bankruptcy can prevent foreclosure. At the very least, filing for bankruptcy can buy you some time in a foreclosure case. However, the extent of protection you get from filing bankruptcy will depend on your mortgage payments and the type of bankruptcy you’re filing.

Certain sections of the bankruptcy code can appear as lifelines for a homeowner wishing to avoid the agonizing foreclosure process. While the purpose of Chapter 7 bankruptcy is to allow individuals to liquidate their assets to eliminate debt, Chapter 13 bankruptcy is designed to enable them to retain their property permanently through a repayment plan.

If you are experiencing trouble making your current mortgage payments or you’ve missed multiple mortgage payments, you may risk losing your residence to foreclosure. Filling Bankruptcy with help from a creditor-bankruptcy lawyer may help you keep your house.

Before filing for bankruptcy to help you retain your home, you should clearly understand what you are getting into. Here is a foreclosures update and a few of the most important ways to remain in your home during bankruptcy.

Understanding the Bankruptcy and Foreclosure Process

A foreclosure is when a bank or mortgage lender takes possession of a defaulted property, often against the homeowner’s will. In most cases, mortgage agreements stipulate that the bank may reclaim the property through foreclosure if the borrower defaults on their mortgage payments.

New Jersey is a jurisdiction that uses judicial foreclosure. This means that a lender must appear in court in order to repossess a property through foreclosure. Under the New Jersey Fair Foreclosure Act, all residential foreclosures are required to follow a specific procedure before a lender can foreclose on a property and evict an occupant from their home or condominium.

A mortgage is a secured loan where you can use your home as collateral. Therefore, if you default on the repayment plan, the lender may seize or transfer the property to a third party through a foreclosure sale to recover their investment.

On the other hand, bankruptcy is for individuals who cannot make their obligations (whether for credit cards, student loans, or personal loans). By filing for bankruptcy, the individual can obtain debt relief.

When you file for bankruptcy, it immediately affects your credit reports and credit scores. However, you benefit from being released from certain creditors in the long term.

What Are the Various Forms of Bankruptcy?

Before learning more about how bankruptcy can stop a foreclosure, you should understand the two most common varieties of bankruptcy.

Chapter 7 Bankruptcy

Under the Chapter 7 bankruptcy process, a fiduciary will be appointed to liquidate your properties and assets. In exchange, most of your unsecured debt will be discharged, giving you a fresh start.

It is crucial to note that even if your mortgage debt is discharged in Chapter 7, creditors can still claim your home. This form of bankruptcy may be the right choice for those without a job or sufficient income to pay off their debts.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is the second type. In contrast to Chapter 7 bankruptcy, the debt is not eliminated. Instead, the bankruptcy court will require you to develop a repayment plan to repay creditors. If your monthly payment plan is approved, you will start paying off the debt in three to five years.

Chapter 7 bankruptcy takes three to four months to complete compared to Chapter 13. Individuals with consistent sources of income but insufficient funds to repay their debts can consider filing bankruptcy using Chapter 13.

In addition to these two, there is also a Chapter 11 bankruptcy. This bankruptcy type is called reorganization bankruptcy, and it is used primarily by organizations.

How Chapter 7 Bankruptcy Effects Foreclosure Process

Since Chapter 7 bankruptcy does not include monthly payments, it can only buy you some time but cannot help you avoid foreclosure. With time, the lender can file a motion for relief from the automatic stay so that the foreclosure proceedings can proceed, or the lender can wait until the bankruptcy discharge is granted.

The automatic stay is a provision under the bankruptcy code that prohibits creditors from taking collection efforts once a bankruptcy case has been submitted in court.

Filing for Chapter 7 bankruptcy could buy you the additional time you need, but once the automatic stay is lifted, the lender can resume their foreclosure proceeding from where it left off. Generally, the only way to avoid this is to bring the mortgage arrears current by making all missed mortgage payments or negotiating a loan modification.

Some individuals file Chapter 7 bankruptcy to gain a small amount of time to relocate but not to stop foreclosure. Assuming you have not had a previous bankruptcy case, this might buy you a couple of weeks to get yourself in order.

How Chapter 13 Bankruptcy Effects Foreclosure Process

Chapter 13 bankruptcy can be used to catch up on your arrearage payments and prevent a potential foreclosure. To use the Chapter 13 bankruptcy process, you must begin making your current mortgage payments and complete it in 3 to 5 years.

If necessary, you can also use Chapter 13 to reduce the interest rate on your car loans. Your unsecured debt (such as credit cards and medical expenses) will be eliminated, and your past-due payments will be eliminated.

Remembering that a debtor should not default on their payment plan is essential. If the debtor defaults, the repayment plan could be revoked, and the debtor would be required to pay the original amount owed.

What Is the Statute of Limitation for Foreclosures in New Jersey?

The statute of limitations on foreclosures in New Jersey is governed by state law, which specifies three crucial timeframes that homeowners should be aware of. These time constraints consist of the following:

  • Six years from the note or mortgage’s maturity date
  • Six years after the last mortgage payment delinquency
  • 36 years from the recording date of the mortgage

Once one of the three timeframes has elapsed, the lender may no longer pursue foreclosure proceedings.

Why You Should Consider Hiring an Attorney

The bankruptcy and foreclosure processes are incredibly complex and challenging to navigate. It’s important to consult a qualified bankruptcy attorney before making a decision regarding bankruptcy or foreclosure.

We at the Law Offices of Scott J. Goldstein, LLC, will use our experience to evaluate your unique circumstances and provide you with the most suitable advice.

More so, hiring an attorney can simplify the entire procedure and help you avoid common foreclosure scams. The attorney will be acquainted with the courts, including the justices and opposing counsel. These connections will enable them to negotiate improved terms that may favor you.

The Law Offices of Scott J. Goldstein, LLC, is available to discuss the possibilities with you immediately.

Book a free appointment to initiate the process of saving your home.

Call the Law Office of Wenarsky & Goldstein

At the Law Offices of Wenarsky & Goldstein, LLC, our New York and New Jersey attorneys are experienced and knowledgeable in bankruptcy, estate planning and probate, guardianship, special needs planning, and real estate law. To learn more about how we can assist you with your legal needs, call us today at 973-453-2838.