Many Indianapolis families may start to consider bankruptcy because they are behind on their mortgage. This is because losing one’s home is a very stressful and scary event, especially if a person has no plans for where to live.
While a bankruptcy may be able to help a Hoosier family who is facing foreclosure, it is important to know what a bankruptcy can and cannot provide in the way of relief.
Most bankruptcies can give families time to figure out options
Most of those who file for bankruptcy will qualify for what the law calls an automatic stay.
An automatic stay prevents a creditor, including a bank, from taking any collection actions against the person who is asking for bankruptcy.
When it comes to foreclosures, as long as the property has not been sold at auction, the bank must stop the process and cancel any pending sales. The bank cannot continue with the foreclosure until the bankruptcy ends or the bank gets permission from the court.
While the automatic stay does not make the foreclosure go away, it does give a family some time to work out alternatives with the bank or, at worst, make other living arrangements.
It is indeed quite possible that after a successful Chapter 7, the family may have more income with which to pay down their mortgage.
Chapter 13 bankruptcies may offer a long-term solution to foreclosure
However, it is important that families realize that the more Chapter 7 bankruptcy is not an effective tool for stopping a foreclosure.
While a discharge will prevent the lender from garnishing wages or pursuing their customer further, the bank will still be able eventually to sell the home at auction.
If a family is determined to try to save their home, they may want to consider a Chapter 13 bankruptcy. A family may use a Chapter 13 to slowly repay their delinquent loan while continuing with their monthly payments. If they fulfill this commitment, the foreclosure threat will go away.