Actually, it is not their decision. Personal bankruptcy and foreclosure are two distinct legal actions, despite the fact that they can influence one another.
A mortgage lender initiates foreclosure proceedings when it is not paid the monthly mortgage payment. The lender wants the property, which serves as collateral for the mortgage loan, to be sold at public auction in order to recover the money it loaned to the borrower. Paying the mortgage lender is the only way to halt a foreclosure action, but personal bankruptcy can affect a foreclosure action.
Individuals who seek court protection against their creditors petition for bankruptcy. Typically, individuals file either Chapter 7 or Chapter 13 bankruptcy.
The ""automatic stay"" is an essential component of every form of bankruptcy. When a bankruptcy petition is filed, most civil legal proceedings, such as foreclosure, must cease by law. Consequently, a mortgage lender must suspend its foreclosure proceedings. A mortgage lender may request relief from the automatic halt and, if granted, proceed with the foreclosure proceeding.
In the majority of instances, the initial interaction between foreclosure and bankruptcy occurs when a mortgage lender files or threatens to file a foreclosure action. The borrower then applies for bankruptcy under Chapter 7 or Chapter 13. Then, the automatic stay goes into effect, and the lender must halt the foreclosure. If the lender is not paid by that time, it will file to have the automatic stay lifted (ended) and proceed with the foreclosure. By delaying the foreclosure and obtaining time to resolve the issue, the borrower has benefited.
Even more interaction exists between Chapter 13 bankruptcy and foreclosure. In most cases, when a borrower falls several months behind on their mortgage payments, the lender will demand a single sum payment to cover the arrears. Under Chapter 13, a person can actually pay the arrearage amount over time, and the foreclosure is stayed during the payment period. A lender may object to the amount paid each month toward the deficiency, but if the bankruptcy court approves the payment plan, the lender has no choice but to accept the payments.
A disadvantage of personal bankruptcy is that individuals must qualify, and not everyone does.
This article contains information of a general nature. If you have any concerns about bankruptcy or foreclosure, you should consult a state-licensed attorney.
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