Bankruptcy cannot necessarily stop a foreclosure from occurring. However, it can be a useful tool to use when facing foreclosure, as it can delay the process.
Whenever someone files for bankruptcy, the court issues an automatic stay. This is a legally binding order that pauses other collection efforts, including foreclosure. Lenders have to wait until the bankruptcy case has concluded before they are able to claim the assets that are still due. After all, some debts may be paid or waived during bankruptcy.
Often, a bankruptcy case can take three or four months. So if your mortgage lender is threatening to foreclose on your home, filing for bankruptcy could buy you more time to stay in the house before that foreclosure can officially begin.
The stay will eventually be lifted
But the key thing to remember is that the automatic stay does not last forever. This is why bankruptcy is not necessarily a long-term solution. Once the bankruptcy case has concluded, the court will lift the stay, and collection efforts like foreclosure can resume.
However, bankruptcy can sometimes make this unnecessary. Perhaps you are overwhelmed by debt, which is what led to the missed mortgage payments in the first place. If you are able to clear some of this debt through Chapter 7 bankruptcy or reorganize it under a Chapter 13 bankruptcy plan, that could make your mortgage affordable again. You can then get current on your payments and avoid foreclosure entirely.
You can see how these two processes often work together, and it is very important to understand exactly what steps to take if you are facing foreclosure.