Consumer Bankruptcy and Foreclosure: Get the Basics

While consumer bankruptcy and foreclosure are not necessarily linked to one another, there are many situations in which bankruptcy and foreclosure are closely related to one another. On the one hand, for example, you may know that some individuals file for bankruptcy in order to stop a foreclosure. You also may know that some debtors seek bankruptcy protection to avoid a deficiency judgment. The following are a few examples of the basic links between consumer bankruptcy and foreclosure. If you have additional questions, a bankruptcy lawyer in Oak Park can help.

Filing for Chapter 13 Bankruptcy to Avoid Foreclosure
One of the most common ways that consumer bankruptcy and foreclosure are linked is in situations where a homeowner files for Chapter 13 bankruptcy in order to avoid foreclosure. Since Chapter 13 bankruptcy is a type of reorganization bankruptcy, a debtor who files for Chapter 13 bankruptcy first gets the benefit of the automatic stay, which will stop any further foreclosure proceedings. Then, this type of bankruptcy allows the debtor to restructure his or her debts with a repayment plan that will last over a period of three to five years. Through the repayment plan, the debtor can get back on track with mortgage payments and avoid foreclosure.

It is important to be clear that Chapter 13 bankruptcy is distinct from Chapter 7 bankruptcy in many ways, including when it comes to avoiding foreclosure and staying in your home. A debtor can avoid foreclosure and get back on track with mortgage payments through Chapter 13 bankruptcy, but not through Chapter 7 bankruptcy.

Seeking Chapter 7 Bankruptcy Protection and Avoiding a Deficiency Judgment
If you are considering Chapter 7 bankruptcy and are also facing foreclosure, you probably have concerns about whether to file for bankruptcy before or after the foreclosure process has finished. For most debtors who are thinking about Chapter 7 bankruptcy, it will make sense to file for bankruptcy before the foreclosure process has finished. By filing for Chapter 7 bankruptcy and getting a discharge, you can discharge the mortgage debt you owe, thereby avoiding a deficiency judgment altogether.

At the same time, even if you do wait to file for Chapter 7 bankruptcy and your mortgage servicer obtains a deficiency judgment, you can still have that debt discharged by filing for Chapter 7 bankruptcy. To be clear, a deficiency is the amount of money that a debtor still owes a mortgage servicer after a home has been sold at a foreclosure auction: The deficiency is the difference between the amount owed and the price at which the home was sold. If a mortgage servicer sues the debtor for that amount and obtains a judgment, that is known as a deficiency judgment.

Contact a Consumer Bankruptcy Attorney in Oak Park, IL
There are numerous connections between consumer bankruptcy and foreclosure, and the examples we discussed above are just a few samples of how these legal processes are related. If you have questions about bankruptcy and foreclosure, an experienced Oak Park bankruptcy lawyer can help. Contact the Emerson Law Firm today to speak with a consumer advocate about your situation.

See Related Blog Posts:
Is Chapter 12 Bankruptcy for Consumers?
How and Why to Replace Your Bankruptcy Lawyer


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