Is it true that bankruptcy can stop the foreclosure process?

When it comes to consumer bankruptcy, there are more benefits to the Chapter 13 bankruptcy process than eliminating defaults and discharging unwanted debts. Under the rules of Chapter 13 bankruptcy protection, the filing of a petition opts to “stay” -- or, delay – the home foreclosure process, as well as halt the collections measures on any other secured or unsecured debts in place at the time of filing.

Under the rules, Chapter 13 debtors can enjoy an “automatic stay” of debt collections, which will temporarily put a stop to the unrelenting phone calls, letters and harassment techniques of unscrupulous debt collectors. In the context of foreclosure, this can be a much-welcomed relief for those who are struggling to make ends meet -- and fear losing their homes as a result.

Of course, Chapter 13 will not automatically relieve a debtor of his or her obligations under a promissory note and mortgage because these documents remain in place to govern the terms of the loan and encumbrance. Filing the bankruptcy petition, however, essentially “buys time” for the harried homeowner. In essence, the bankruptcy process is designed to help wipe the slate clean for overburdened debtors, which could help free up enough monthly income to resume mortgage payments and stay on the road to financial peace.

In some instances, bankruptcy can eliminate certain junior liens and mortgages in place on a property, such as a home-equity line of credit (HELOC) or similar encumbrance. As well, many unsecured debts such as credit cards or unsecured personal loans will be discharged, creating a much brighter financial future for the Chapter 13 bankruptcy debtor.

If the automatic stay seems like a viable, desirable option for you in light of your current financial situation, you should contact a highly competent bankruptcy attorney.