Must I file for bankruptcy before foreclosure proceedings begin to protect my home?

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Must I file for bankruptcy before foreclosure proceedings begin to protect my home?

The company that bought our second mortgage that we had defaulted on is threatening foreclosure. We have tried unsuccessfully to negotiate with them. Unfortunately, it seems bankruptcy may be the only way to keep our home. Reduced household income and injuries have prevented us from making payments. We have already defaulted on other accounts and another loan. There is nothing left to cut. Can we wait for foreclosure proceedings to begin and then declare bankruptcy or must we declare first to prevent foreclosure? It may be futile but we are hoping to avoid bankruptcy.

Asked on May 2, 2012 under Bankruptcy Law, New York

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

You can file bankruptcy after foreclosure proceedings begin, and once you file, all collections efforts and legal attempts to recover payment from you, including foreclosure, will be temporarily stopped or stayed. Two things to bear in mind:

First, if you cut the timing too close and the foreclosure is actually accomplished before the bankruptcy is formally filed, you will lose the home. Bankruptcy will stop a pending or in-process foreclosure, but will not "undo" a foreclosure that has already happened.

Second, while bankruptcy will temporarily halt foreclosure, it will NOT prevent it indefinitely: at some point, if you cannot or will not pay what you owe on the home, the bank will be able to foreclosure. Filing bankruptcy is not a permanent solution to the threat of losing your home. When a debt is secured by property, like a mortgage is secured by a home, the lender has the right to take the property if the debt is not paid; what bankruptcy will do is prevent you from then (if the home is underwater on the loan) being sued by the bank for additional amounts (a "deficiency judgment").


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