Bankruptcy may provide relief if you find that your income cannot support your bills. Sometimes, filing for bankruptcy may in fact have the effect of stopping a foreclosure on your home.
When you file for bankruptcy, most creditors must stop trying to collect their debts from you because of an order called an automatic stay. An automatic stay is entered as soon as the bankruptcy court receives your papers. If a bank is threatening foreclosure, the bank may have to wait for the bankruptcy proceeding if the automatic stay has begun, or the bank may have to ask the court’s permission to continue collection efforts.
The following is a common scenario: You may have a lot of bills from various sources. You may have large credit card bills, and also car and house payments. As the credit card bills mount, you begin to feel anxious about them. As a result, you choose to skip some house or car payments to pay the credit card bills. Then the bank threatens to foreclose on your home. Until you pay off your loan, the bank owns your house and has the right to sell it if you fail to make payments. If you stop paying your mortgage payments, the bank may threaten to foreclose.
When you file a Chapter 13 bankruptcy, the bank may be reassured that you will pay your house payments. That way, they will not need to foreclose on the home. Chapter 13 bankruptcy allows you to keep your property while making installment payments to your creditors.
The bankruptcy proceeding will set the amounts that you have to pay to some of your creditors, like credit card companies. This amount is often significantly less than what you had been paying them. It can be as little as 10%. This set amount is all you have to pay your creditors and it may leave you more money to pay your house payments. A foreclosure on your home may be prevented this way. Of course, if you do not have the income for this type of arrangement, the bankruptcy court will not approve your Chapter 13 plan and you may be unable to stop foreclosure.
Depending on your personal financial situation, bankruptcy may be the answer to a pending foreclosure. If your bank threatens to foreclose your first step is to try to work out an arrangement with the bank to avoid foreclosure. If no satisfactory arrangement can be made a consultation with a bankruptcy attorney can help you determine how a Chapter 13 bankruptcy might help protect your interests.
For more information, see: 11 U.S.C. §§ 109(e), 502, 507, 522, 1303, 1322, 1325, 1328 (2015); W. Va. Code § 38-10-4 (2015).