How Bankruptcy Can Stop Foreclosure On Your Home

Maryland brick home. Bankruptcy is a legal tool that can help homeowners prevent or delay foreclosure.Home is where the heart is. Your home is not only your most important financial asset, but it is likely filled with many family memories. Unfortunately, during difficult economic times, it is not unusual for people to struggle with mortgage payments and sometimes be forced to give up their home. According to the Maryland Department Of Labor, The Office of the Commissioner of Financial Regulation (OCFR) received over 5,000 notices of intent to file for foreclosure during the 3rd quarter of 2021 alone. In the past year, nearly 1,700 Marylanders were forced to file for foreclosure and these numbers are only expected to increase. As of August 2021, Maryland was ranked 16th out of 50 states for foreclosures with one out of every 9,678 households filing for foreclosure. Read on to learn how bankruptcy can be a useful tool for helping homeowners prevent or delay foreclosure.

What is Foreclosure?

Foreclosure is a legal process initiated by a bank or other lender when a homeowner is unable to make their monthly mortgage payments on a home. There are many hardships that might cause a homeowner to fall behind on mortgage payments, some beyond the control of the homeowner. Lenders realize this, but they are not always willing to be helpful. For example, lenders are unlikely to renegotiate terms with a homeowner who is already behind in mortgage payments. When a bank begins foreclosure proceedings, its goal is generally to recoup the full mortgage amount. If the individual is unable to pay the full amount, they will lose their home. In some cases, filing for bankruptcy can delay or stop foreclosure. An experienced personnel bankruptcy attorney can provide guidance.

How Bankruptcy Protects You

Many people have the misconception that declaring bankruptcy means that they will be left out on the street. However, the truth is that bankruptcy protects you from having to leave your home or buys you time to find a new place to live.
There are two major classifications of bankruptcy; Chapter 7 and Chapter 13. A qualified bankruptcy attorney can give you advice and guidance in this process to determine which classification is right for you. Either filing can stop the foreclosure process and creditors cannot attempt to collect money owed during the bankruptcy process. During that time you have the opportunity to evaluate your finances and determine what is the best resolution for your situation.

Once the bankruptcy petition has been filed, an automatic stay is placed on all of your debts and this includes any efforts to foreclose on your home. Once the automatic stay is in place, all creditor actions to collect payment must be halted – meaning no more letters or phone calls from debt collectors. Even if your home is up for foreclosure sale, the automatic stay can stop or delay the process. The automatic stay on foreclosures ends when the bankruptcy process is finished or if the lender gets court permission to “lift the stay”. However, getting a stay lifted is a difficult and lengthy process (at least two to three months). Most bankruptcy cases are discharged within one to three months, before the foreclosure sale of your home can be completed.

Chapter 13 Bankruptcy and Foreclosure

In Chapter 13 bankruptcy, the debtor agrees to pay down part or all of their debt in installments over a set period of time, typically around five years. This process is carefully monitored by a bankruptcy trustee, and at the end of the term all remaining debt is discharged or “wiped clean”. During this process, new terms are worked out with your mortgage lender. You will need to keep up on the new payments, but you will get to keep your home. Another advantage of Chapter 13 bankruptcy comes into play if you also have a second or third mortgage or a home equity line of credit (HELOC). It might turn out, however, that you do not have enough income to cover these obligations and will eventually have to give up your home. A good bankruptcy lawyer can make sure you make the right decisions and that all your rights are protected during the process.

In some cases Chapter 13 bankruptcy can be used to wipe away second or third mortgages. Imagine your home has an appraised value of $150,000, and that your first mortgage’s owed balance is more than $150,000 (commonly called being upside-down or under water). This means that your second and third mortgages or HELOC are unsecured by any actual real estate value. Because they can be considered unsecured debt, a Chapter 13 plan can strip them off using the bankruptcy code’s sections 1322(b)(2) and 506(a). During difficult economic times when homes lose their values, the use of Chapter 13 bankruptcy to strip off additional liens can be an important tool for debtors.

Chapter 7 Bankruptcy and Foreclosure

In Chapter 7 bankruptcy, the individual’s debts are paid down from proceeds generated by the sale of non-exempt assets. In this case, the foreclosure process is delayed for up to four months. However, once the stay is lifted the foreclosure process can continue. During the four month delay, the debtor can either find money to continue paying off their mortgage or look for another dwelling. One advantage is that during the four month wait the bankruptcy filer can live in their home for free.

It is sometimes possible to keep your home and avoid foreclosure under Chapter 7 bankruptcy. The equity you have in your home and your history of paying your mortgage payments will be considered by the bankruptcy courts. It is also important to know that the lender can request to proceed with foreclosure despite the bankruptcy filing. If this request is granted, the time you have to find a new place to live will be reduced.


If you would like to understand more about mortgages, credit issues and other housing concerns, a valuable resource is the United States Department of Housing and Urban Development (HUD) website. In addition, schedule a consultation with an experienced local bankruptcy attorney. If you are facing the possibility of foreclosure on your home, don’t delay – contact Sirody & Associates. Our attorneys will ensure that your case is handled appropriately with your best interests in mind.