Insightful Guidance For Your Bankruptcy Needs REACH OUT

Can Filing for Bankruptcy Stop a Foreclosure?

Law Office of Victor Druziako, P.C. May 22, 2024

Women holding Foreclosure noticeFacing foreclosure can be one of the most stressful experiences a homeowner goes through. The thought of losing your home can bring about a sense of urgency and desperation.

At the Law Office of Victor Druziako, P.C., we represent homeowners in South New Jersey who are facing financial distress.  

We guide individuals through their bankruptcy options to offer a fresh start, particularly in stopping foreclosures. We offer legal counsel with compassion and direct communication.

Operating out of Vineland, New Jersey, we promise diligent and trustworthy legal support, providing free consultations to those facing financial distress. This guide outlines the critical insights and considerations for filing bankruptcy to stop foreclosure. 

Understanding Bankruptcy Types and Eligibility

In New Jersey, filing for bankruptcy can temporarily stop foreclosure. This is made possible through something called an "automatic stay," which immediately stops most creditors, including mortgage lenders, from continuing with collection actions. But it's important to understand the nuances and long-term implications of this decision. 

The U.S. Bankruptcy Code offers two primary chapters under which individuals can file: Chapter 7 and Chapter 13. Both can impact foreclosure proceedings but differ significantly in their processes, impacts on assets and liabilities, and eligibility requirements. 

Chapter 7 Bankruptcy Overview 

Chapter 7, often referred to as liquidation bankruptcy, allows debtors to discharge most of their unsecured debts. 

  • Eligibility: To qualify for Chapter 7, debtors must pass a means test, comparing their income to the median in their state. If the income is too high, they may not be eligible. 

  • Impact on Assets and Liabilities: Chapter 7 may result in a bankruptcy trustee selling non-exempt property to pay off creditors. Many personal assets, like primary vehicles and reasonable household goods, are typically exempt, but this can vary by state. 

  • Debts Covered: Most unsecured debts, such as credit cards and medical bills, can be discharged. However, it doesn't cover student loans, alimony, child support, and certain taxes. 

  • Foreclosure Impact: Filing for Chapter 7 can temporarily stop foreclosure proceedings due to the automatic stay. However, since it doesn't provide a mechanism to catch up on missed payments, the lender can eventually proceed with foreclosure after the stay is lifted unless the debtor finds another way to pay off the mortgage arrears. 

Chapter 13 Bankruptcy Overview

Chapter 13 is known as a reorganization bankruptcy. It's designed for debtors with regular income who want to develop a plan to repay all or part of their debts. 

  • Eligibility: There's no means test, but debtors must have a regular income, and their unsecured and secured debts must not exceed certain limits. 

  • Impact on Assets and Liabilities: Debtors can keep their property while making payments under a court-approved plan, which typically lasts three to five years. 

  • Debts Covered: Chapter 13 covers more types of debt than Chapter 7, including some debts that can't be discharged in Chapter 7. It can also manage mortgage arrears, allowing debtors to catch up over the term of the repayment plan. 

  • Foreclosure Impact: If facing foreclosure, Chapter 13 is often more beneficial than Chapter 7. The filing immediately stops foreclosure proceedings, and the repayment plan allows the homeowners to catch up on past-due mortgage payments, potentially keeping their home. 

Choosing Between Chapter 7 and Chapter 13

The choice between filing for Chapter 7 or Chapter 13 bankruptcy should be based on the homeowner's specific circumstances, including their income, the types of debt they hold, and their primary objectives (e.g., discharging debts vs. keeping their home). 

If keeping the home is the priority and the homeowner has a steady income, Chapter 13 might be the best path. It offers a way to catch up on mortgage payments while staying current on other obligations.

If the homeowner's primary goal is to eliminate debt and they lack the income to support a repayment plan, Chapter 7 could provide a fresh start. However, this might not be the best option if the objective is to avoid foreclosure and keep the home. 

We always recommend consulting with an experienced bankruptcy attorney before filing for bankruptcy. At the Law Office of Victor Druziako, P.C., we can help you determine whether bankruptcy is the right solution for your unique situation and, if so, which type of bankruptcy would be most beneficial.  

Alternative Options to Avoid Foreclosure

Although bankruptcy is a very beneficial tool in certain situations, it’s still a life-changing decision with significant long-term effects. Before deciding on bankruptcy, it's worth exploring alternatives: 

  • Loan Modification: Negotiating with the lender to change the terms of your mortgage to make payments more manageable. 

  • Forbearance Agreement: Temporarily reducing or pausing mortgage payments, with an agreement to catch up later. 

  • Short Sale: Selling the property for less than the outstanding mortgage balance, with the lender's approval. 

Frequently Asked Questions (FAQs) About Filing for Bankruptcy to Stop Foreclosure in New Jersey

How soon do I need to file for bankruptcy to stop the foreclosure process in New Jersey?

It's critical to file for bankruptcy before your lender's foreclosure sale occurs. Once the sale is finalized, filing for bankruptcy won't reverse the sale of the home in most cases. Ideally, consult with a bankruptcy attorney as soon as you receive a foreclosure notice to explore your options and prepare the necessary documentation in time. 

When can a lender resume foreclosure in Chapter 7 bankruptcy? 

In a Chapter 7 bankruptcy, if the lender obtains permission from the bankruptcy court to proceed with the foreclosure, known as lifting the automatic stay, they may resume foreclosure actions. However, this process gives homeowners additional time to arrange alternative living arrangements or negotiate with the lender. 

Can I refinance or modify my mortgage after filing for bankruptcy in New Jersey? 

While bankruptcy can make refinancing or modifying a mortgage more challenging, it's not impossible.

During or after a Chapter 13 bankruptcy, you might be able to refinance or modify your mortgage, especially if you've been making regular payments and improving your financial situation. Lenders have different policies on refinancing and modification after bankruptcy, so it's beneficial to discuss your specific situation with both your bankruptcy attorney and mortgage lender. 

Importance of Legal Support When Facing Foreclosures and Potential Bankruptcy

Although filing for bankruptcy can be a highly effective strategy for certain situations, it does not guarantee that you can save your home, especially if you are significantly behind on mortgage payments.

An attorney who understands both real estate and bankruptcy law can make all the difference in helping you find the right solution. By understanding the types of bankruptcy, preparing the necessary documentation, and working closely with experienced legal representation, you can navigate the process more smoothly and work towards stopping foreclosure and regaining financial stability.  

Reach Out to Attorney Victor Druziako for Legal Support

If you're facing foreclosure and considering filing for bankruptcy to keep your home, reach out to us. Our firm, located in Vineland, New Jersey, is committed to helping individuals throughout South Jersey, providing personalized guidance to help protect your home and find a path forward through challenging financial circumstances. 

Together, we can explore all available options to address your situation and work towards a resolution that aligns with your goals. Contact us today to learn more about how we can assist you during this critical time.