How Bankruptcy Affects Foreclosure

How Bankruptcy Affects Foreclosure

How Bankruptcy Affects Foreclosure

If you are a homeowner and you fail to make your mortgage payments on time for an extended period, you are in danger of your mortgage being foreclosed and you losing your home. Foreclosure is primarily the means by which a mortgage holder, usually the bank, starts the process to take control of the real estate for which he has given you the loan.

The majority of consumers can't afford to buy their homes outright with cash. What they will do instead is to visit their local bank or some other mortgage lender and request a loan with which to purchase the home. The property will be used as collateral in the event that the buyer, for some reason, doesn't live up to his end of the bargain and defaults on the loan. When the foreclosure process ends, the lender takes control of the property and will attempt to sell it in order to recoup the money that the homeowner borrowed.

Each of the fifty states has its own rules and guidelines for foreclosure. For example, in some states, foreclosure takes place in the courts, while in other regions it takes lace outside of the courts. The states also have various rules for notification periods stating how long a homeowner must be given before they are forced to leave the property. The laws are so diverse that in some states it is as little as 2 months, while in others, the homeowner has up to two years.

The process varies state by state. For instance,in some states, the process starts with what is known as a pre-foreclosure notice. When a person misses a number of mortgage payments, the lender sends out one or more notices informing him that his payments are late. If the borrower cannot pay, the lender will then probably demand the remainder of the mortgage payments from the homeowner. If he cannot pay, foreclosure proceedings will be initiated.

One way to stop foreclosure proceeding is to file for bankruptcy. As soon as you file the papers, the foreclosure proceedings are stopped - temporarily. Once the judge makes a ruling, however, on whether the bankruptcy can proceed, the mortgage holder can go ahead with the foreclosure proceedings.

Put in a different way, bankruptcy does not stop the foreclosure proceedings permanently. At most, it is a way of holding up the foreclosure proceedings. The extra time can possibly give the homeowner enough time to come up with the money to bring his back payments up to date.

Now if the homeowner manages to come up with enough money from various sources - there is normally a redemption period in which the homeowner can buy the property back. This would be the best possible outcome for all concerned. The homeowner gets to keep his home, he also gets his payments up to date, and the lender doesn't have to go into the real estate business.

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