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A bankruptcy filing often will often delay the foreclosure. Depending on what kind of bankruptcy you file for, you may even be able to save your home. Before you get into it, though, here are five things you'll need to know:
- Exceptions to the automatic stay. Once you apply for bankruptcy, the court will issue an order called an automatic stay which legally hits the pause button on the sale, usually for a few months. However, there are some exceptions to this stay -- for example, the lender has the option of obtaining a motion to lift the stay, especially if the foreclosure notice has already been issued months ago.
- Be on the alert for scams. Beware bankruptcy foreclosure scams. Scam operators may specifically target you if your home is listed for foreclosure, and may try to obtain refinancing for you. Or, the scammer will offer to be the middle man and entice you to hand your property deed to him or her. Instead, the scammer may end up just pocketing all your money.
- Bankruptcy isn't your only option. If you are facing foreclosure, there are other alternatives besides bankruptcy. If you qualify, your lender may be able to arrange a special repayment plan based on your financial situation under a special forbearance. Also, you may be able to adjust your your mortgage payments to a more affordable amount. To find out if you quality for these alternatives, contact your lender.
- Different types of bankruptcy have different effects. A debtor can generally choose to file either a Chapter 7 bankruptcy or Chapter 13 bankruptcy. Chapter 7 is known as a "liquidation" bankruptcy, while Chapter 13 reorganizes your debt into a repayment plan. You should choose the type that's most fitting for your financial situation.
- Redemption. Many states have a statutory right of redemption after some types of foreclosure sales, according to the U.S. Department of Housing and Urban Development. Basically, this is an opportunity for the debtor to pay off the debt, including interest, to reclaim the property after defaulting on the mortgage. However, keep in mind that the timeframe for this may vary by state law. It also depends on what kind of foreclosure your property went through.
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