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Chapter 7 delays foreclosures but doesn’t stop them

For a New Jersey resident dealing with the loss of income because of divorce, downsizing or illness, Chapter 7 bankruptcy can be an attractive option to consolidate bills and start over financially. However, Chapter 7 will not stop foreclosure although it could delay it temporarily. Homeowners may only be able to put off the foreclosure for 30 to 60 days.

When you file a Chapter 7 bankruptcy, your home will initially be included, and foreclosure proceedings will stop. However, lenders can ask for a “relief from stay,” which allows them to continue to foreclose on the property. When the homeowner cannot bring the payments up to date, the courts will give the lender a hearing where they can prove the homeowner is behind in house payments.

Every state, including New Jersey, has a step-by-step process for foreclosure. Bankruptcy and foreclosure are separate from each other in the eyes of the courts. However, the lender may consider a loan modification during the bankruptcy, either before or during the filing of the relief from stay. In most cases, the homeowner will need additional income in order for the loan modification to be approved. The lender wants assurance that you can afford the home if they allow you to keep it. If you do lose the home, a bankruptcy may be able to discharge any monies you still owe on the property.

Bankruptcy can be a confusing process and a bankruptcy attorney can provide clients with counsel related to home ownership and foreclosure proceedings. The lawyer can explain bankruptcy protection and what that covers so that clients know how to plan financially for their futures.

Source:, “Will Bankruptcy Save my Home from Foreclosure?,” Justin Harelik, Jan. 15, 2013

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