Do I need to file bankruptcy if I am in danger of foreclosure?

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Do I need to file bankruptcy if I am in danger of foreclosure?

Asked on August 2, 2011 New Jersey

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Bankruptcy does not stop foreclosure, though it will delay it and *may* help you negotiate with the bank.  A mortgage is a secured debt; that is, your home is collateral for it. A lender of a secured debt has the right to take back the property (foreclose or repossess) if the debt is not paid, EVEN IF bankruptcy is filed; they can't then sue you for any remaining balance or take other action to collect money from you, but the bankruptcy does not wipe out the security interest in the property or prevent foreclosure. Thus, ultimately, you have to either agree to keep paying the mortgage, notwithstanding the bankruptcy filing--often called "affirming" the debt--or give up your home (though again, at least you can't also be sued).

Where the bankruptcy can help you is:

1) Bankrupty temporarily halts, or stays, collections, including lawsuits and foreclosure, while the bankruptcy process works through--it buys you time;

2) Since the last thing banks need is more foreclosed homes, the lender may be willing to negotiate with you to get you to agree to affirm the loan; that is, they may be willing to reduce what you owe, reduce your interest rate or monthly payments, extend the loan to give you more time to pay, etc. They don't have to, but filing bankruptcy at least can give you some leverage in negotiations.

M.T.G., Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Although a chapter 7 bankruptcy - if you qualify - will stop foreclosure proceeding for a time, once the stay is lifted the foreclosure can still proceed.  A chapter 13 will allow you to reorganize your debts and work put a payment plan that may be better for you to live with.  But it in very difficult to give any advice in this type of forum without being able to look at your whole financial picture.  Do you want to walk away from the house or keep it?  Are there other options such as refinancing under the new laws?  I would contact someone to help.  You can start with the state attorney general's office for some free info on mortgages, etc.  Good luck to you.


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