A home financed by a mortgage is collateral for the loan. Until the buyer pays what they owe in full, the property is vulnerable to foreclosure. If a homeowner misses multiple back-to-back payments, their lender could initiate legal foreclosure proceedings.
People at risk of foreclosure, especially those who have received notice of pending legal action, often need to act quickly to protect their homes. There are several options available depending on the circumstances. Filing for personal bankruptcy is one tactic that can help people in many situations prevent foreclosure. How can a bankruptcy filing protect people who have fallen behind on their mortgages?
Filing pauses collection activity
The timeline for personal bankruptcy can extend from a few months to multiple years. The type of bankruptcy the person pursues has a direct impact on how long it takes to complete the process. After they complete all of their legal obligations, including asset liquidation or years of structured payments, they can discharge what remains of their eligible debts.
People do not have to wait for the discharge of their eligible debts to receive financial relief through bankruptcy. Instead, the automatic stay that the courts provide takes effect the same day that the filer submits paperwork to the courts. An automatic stay prevents creditors from continuing to make collection phone calls.
Typically, creditors also have to dismiss pending litigation, including foreclosure efforts. People can prevent imminent foreclosure, negotiate loan modifications and eliminate some of their secondary financial responsibilities during personal bankruptcy.
Discussing mortgage issues can help those worried about impending foreclosure explore their options. A timely bankruptcy filing may help protect years of accumulated home equity.