Bankruptcy

One method to delay foreclosure.

One way to temporarily stop a foreclosure may be to declare bankruptcy. Bankruptcy is a common strategy to delay foreclosure because a home cannot be sold or foreclosed on while the homeowner is in bankruptcy (Chapter 7 & 13). The court order that legally postpones the foreclosure is referred to as an “Automatic Stay.”

A homeowner can declare bankruptcy up to the day before their home is scheduled for auction – given that they have more financial hardship beyond their mortgage. When a homeowner declares bankruptcy, however, their mortgage lender may obtain permission from the bankruptcy court to have the Automatic Stay on the home removed. If permission for this is granted, the home goes back into foreclosure and onto auction. Thus, bankruptcy can be effective in delaying a foreclosure – although only temporarily.

Both bankruptcy and foreclosure will damage your credit score. However, sometimes bankruptcy is the preferable option when trying to rebuild credit. The reason for this is that a foreclosure will damage your credit score for many years, will not get rid of your other debt, and is very harmful if you are looking to buy another home. 

In contrast, discharging your debts in bankruptcy will harm your credit score, but can help you rebuild your score quicker. This is because bankruptcy may leave you debt-free, and therefore, you may be able to start rebuilding your credit score sooner.\

Be aware that many homeowners that declare bankruptcy to delay a foreclosure end up getting foreclosed on anyway. This is because a bankruptcy only delays the foreclosure until the lender can get the Automatic Stay on their hosue lifted. In the end, the homeowner ends up in a worse situation – with a foreclosure and a bankruptcy on their credit report.

If a homeowner’s financial problems can be mostly resolved by selling their home, a short sale or other options for the seller are much better than bankruptcy.

Common questions about Bankruptcy

How do I declare bankruptcy?

You must consult with a bankruptcy attorney and complete the necessary paperwork; they will file it with the courts.

How much does a bankruptcy cost?

It depends on the attorney; in our experience, simple bankruptcies start around $2,000.

Are there alternatives?

Absolutely! Consider the many other options that we offer at Sold ASAP. We will explore each and every possibility available to you.

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