Will Bankruptcy Prevent Your Foreclosure?

Calvin Craig • October 25, 2022

Will Bankruptcy Prevent Your Foreclosure?


So, you’ve received a foreclosure notice. Should you file for bankruptcy? Will a bankruptcy proceeding help you hang onto your home? If you are successfully discharged from your mortgage debt, will you still have to make payments in the future?


Bankruptcy is serious business and has many significant repercussions that can impact your life in the short and long term. In some cases, filing for bankruptcy can help you prevent foreclosure – sometimes permanently, so long as you make your payments, and sometimes temporarily.

There is no one-size-fits-all solution. How bankruptcy will impact your impending foreclosure will depend on several factors, such as the type of bankruptcy you file for and how much equity you have in your home.


In this article, we’ll explore the relationship between bankruptcy and foreclosures. If you have any questions about your individual situation or bankruptcy and foreclosure more broadly, please contact our friendly team. We’d be happy to walk you through your options and guide you toward your desired outcome.


What is an Automatic Stay?


An automatic stay is a provision under United States bankruptcy law that enables a bankruptcy filing to prevent foreclosure for a period of time. It stops creditors, government departments, and collection agencies from pursuing owed funds from debtors that have filed for bankruptcy.


In practice, if you file for bankruptcy before your lender begins or finishes a foreclosure, an automatic stay will postpone your foreclosure. Your stay applies from the day you file for bankruptcy and ends after court proceedings.


If you do not pay your mortgage or are behind on payments, your lender may file a motion that allows them to execute a foreclosure during your bankruptcy proceedings. If the court grants your lender’s motion, they are permitted to continue with your foreclosure.


Bankruptcy Discharges and Mortgage Debts


For many, a discharge from debt is the goal of filing for bankruptcy. If you are granted discharge from a debt, you are no longer personally liable for that debt. In some cases, you can pursue a discharge from your mortgage debt.


Individuals can file for bankruptcy in one of two ways – Chapter 7 bankruptcy and Chapter 13 bankruptcy. A trusted attorney can advise on the best path forward for your personal situation. The pathway you take will affect your potential mortgage debt discharge.


  • If you file for Chapter 7 bankruptcy, your discharge is typically granted after the creditor – in the case of your mortgage, your lender – has sufficient time to either object to the discharge or file a motion to dismiss it. This process can take several months.
  • If you file for Chapter 13 bankruptcy, your discharge will be given following the completion of your payment plan. This process can take three to five years, if not more.


If your mortgage debt is discharged under a Chapter 7 or Chapter 13 bankruptcy, you cannot be held personally liable for your mortgage debt. However, that does not mean you are permanently protected against foreclosure.


The Mortgage Lien and Foreclosure


Let’s say you file for bankruptcy and are discharged from your mortgage debt. You cannot be held personally liable for that debt, but the lender may still have a right to foreclose your property. It seems contradictory, so let’s take a closer look at the mortgage lien and how that impacts foreclosures following a successful bankruptcy proceeding.


In most cases, when you take out a mortgage, you are committing to two legal obligations:


  • promissory note is a personal promise you make to your lender to pay back the borrowed funds.
  • mortgage, also known as a deed or trust, establishes what’s known as a lien on the property. A lien is your lender’s legal right to your property if you default on your payments. If you have a mortgage, you have a lien.


You are relieved of your personal promise to repay the lender when you are discharged from a mortgage debt via a bankruptcy filing. The lien remains active. This enables your lender to foreclose on your property following the automatic stay, or if you have defaulted on your payments, after your bankruptcy proceedings are completed.


Will Chapter 7 Bankruptcy Prevent Foreclosure?


In a Chapter 7 bankruptcy, a bankruptcy trustee is nominated to liquidate your assets. The proceeds are used to pay off your debt. When all proceeds are exhausted, the leftover debt is discharged. In most cases, a Chapter 7 bankruptcy cannot prevent foreclosure altogether. But it can delay it temporarily.


Here are several scenarios to consider:


  • If you are up-to-date with your mortgage payments and have very little equity in your property, you can likely avoid foreclosure and keep your home.
  • If your home holds significant equity, your creditors may have to sell your property to repay your debt, in which case filing for bankruptcy won’t prevent foreclosure, just delay it.
  • You will likely be subject to foreclosure if you are behind on your payments – even if creditors do not sell your home.


Will Chapter 13 Bankruptcy Prevent Foreclosure?


If you file for Chapter 13 bankruptcy, you will be obligated to pay part or all your debt through a repayment plan (generally over three to five years, depending on the amount of debt owed and your income). If granted, these repayments can include money owed on your mortgage.


So, if you are behind on your mortgage payments and want to keep your home, Chapter 13 bankruptcy may help you reach your goals. 


Always Seek Professional Legal Counsel


Navigating bankruptcy, foreclosure, and the intersection between the two is no easy task, so don’t go it alone. To ensure you have the best chance of achieving your desired outcome, enlist the help of a professional bankruptcy attorney.


At The Law Office of Calvin Craig, we stand by our clients’ sides every step of the way, leveraging our deep experience, passion, and empathy to mitigate risk, minimize damage, and protect their interests. If you would like to discuss your personal circumstances, please don’t hesitate to reach out today. We are here to help.


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Filing for bankruptcy can be a difficult decision, but for many individuals and families in financial distress, it can offer a fresh start. Chapter 13 bankruptcy, also known as a “wage earner’s plan,” allows debtors to create a plan to repay all or part of their debts over time. At the Law Office of Calvin Craig in North Carolina, we help clients navigate the Chapter 13 bankruptcy process and regain control of their financial future.  What Is Chapter 13 Bankruptcy? Chapter 13 bankruptcy is designed for individuals who have a steady income but are struggling to keep up with their debts. Unlike Chapter 7, which involves liquidating assets to pay off debts, Chapter 13 allows you to restructure your debts into a manageable payment plan that lasts three to five years. During this period, you make regular payments to a bankruptcy trustee, who then distributes the funds to your creditors. Key Benefits of Chapter 13 Bankruptcy Avoid Foreclosure: One of the biggest advantages of Chapter 13 is its ability to stop foreclosure proceedings. If you’ve fallen behind on mortgage payments, Chapter 13 gives you the opportunity to catch up on those payments over time while protecting your home from foreclosure. Consolidated Payments: Chapter 13 allows you to combine your debts into one manageable monthly payment. This can simplify your financial situation and reduce the stress of dealing with multiple creditors. Protection of Assets: Unlike Chapter 7, which may require you to sell certain assets to pay creditors, Chapter 13 allows you to keep your property while making payments on your debts. Debt Discharge: At the end of the repayment period, any remaining unsecured debts (such as credit card debt or medical bills) may be discharged, meaning you will no longer be required to pay them. Stop Collection Efforts: Once you file for Chapter 13, an automatic stay goes into effect, which halts wage garnishments, lawsuits, and collection calls from creditors. Eligibility for Chapter 13 Bankruptcy To qualify for Chapter 13 bankruptcy, you must meet certain criteria: Regular Income: Chapter 13 requires you to have a steady income that allows you to make regular payments under a repayment plan. Debt Limits: As of 2023, unsecured debts (such as credit cards and medical bills) must be below $465,275, and secured debts (such as mortgages and car loans) must be below $1,395,875 to qualify for Chapter 13. Tax Filings: You must be up to date with your tax filings to be eligible for Chapter 13 bankruptcy. The Chapter 13 Bankruptcy Process Filing the Petition: The process begins when you file a bankruptcy petition with the court. This includes providing detailed information about your assets, debts, income, and expenses. Creating a Repayment Plan: You will work with your attorney to create a repayment plan that outlines how you will repay your debts over the next three to five years. The plan must be approved by the bankruptcy court. Automatic Stay: Once the petition is filed, an automatic stay goes into effect. This prevents creditors from taking any collection actions, including foreclosure, repossession, or wage garnishment. Making Payments: You will begin making monthly payments to a bankruptcy trustee, who will distribute the funds to your creditors according to the approved repayment plan. Completion of the Plan: If you successfully complete the repayment plan, any remaining eligible unsecured debts may be discharged, giving you a fresh financial start. How Chapter 13 Differs from Chapter 7 While both Chapter 13 and Chapter 7 bankruptcy offer relief from overwhelming debt, they are fundamentally different. Chapter 7 is typically faster, allowing for the liquidation of non-exempt assets to pay off debts within a few months. However, it may require the sale of valuable assets and is only available to individuals who pass the means test, which measures your ability to repay debts based on your income. Chapter 13, on the other hand, is a reorganization of your debts that allows you to keep your property and repay what you owe over time. It is an ideal option for individuals who are behind on mortgage or car payments and want to avoid losing their home or vehicle. Why You Need an Experienced Bankruptcy Attorney Filing for Chapter 13 bankruptcy is a complex process that requires a deep understanding of bankruptcy law and financial planning. Having an experienced bankruptcy attorney by your side can make a significant difference in the outcome of your case. At the Law Office of Calvin Craig, we guide clients through each step of the process, ensuring that they meet all the necessary requirements and create a repayment plan that works for their unique financial situation. Our services include: Personalized Legal Advice: We help you understand your options and determine whether Chapter 13 bankruptcy is the best solution for your financial challenges. Filing Your Petition: We assist with filing all the necessary paperwork and ensuring that your petition is complete and accurate. Creating a Repayment Plan: We work with you to create a feasible repayment plan that fits your budget and meets the court’s requirements. Representation in Court: We represent you in court and at any hearings, advocating on your behalf to protect your rights and interests. Chapter 13 bankruptcy can be a powerful tool for individuals in North Carolina who are struggling with debt but want to keep their property and regain financial stability. By working with an experienced bankruptcy attorney at the Law Office of Calvin Craig, you can navigate the complexities of Chapter 13 and start building a brighter financial future. If you’re considering filing for Chapter 13 bankruptcy or need advice on managing your debt, contact the Law Office of Calvin Craig today for a consultation. We’re here to help you every step of the way.