Does Bankruptcy Stop Foreclosure?

Jeffrey Judge - Judge Law Firmby Jeffrey JudgeLast updated Sep 10, 2020Category: Credit Score
bankruptcy explained

While most Arizona tenants are protected from eviction during the current health crisis, homeowners may find themselves in a more difficult position. Many Tucson-area residents who are paying mortgages instead of rent are facing the same challenges: job loss, uncertainty about the future, another significant drop in income with the expiration of the federal supplement to unemployment. Many small landlords who rely on rental payments to cover their mortgages are also struggling. 

This instability has put a common question in the spotlight: Can bankruptcy save my home

The answer isn’t a simple “yes” or “no.” 

Whether or not bankruptcy can help you avoid foreclosure depends on a variety of factors, including: 

  • Which type of bankruptcy you file
  • How much regular income you have
  • What other debts you have
  • Your past-due balance
  • Your current mortgage payments

Bankruptcy Interrupts Foreclosure

While bankruptcy won’t always provide the tools you need to save your home from foreclosure, a bankruptcy filing does typically freeze foreclosure proceedings. There are a few exceptions, but in most bankruptcy cases the court enters an “automatic stay” when the case is filed. The automatic stay is a court order that pauses most collection activity. That includes foreclosure activity. Whether the lender is threatening foreclosure or a foreclosure action has already begun, the automatic stay stops it. That’s true even if a foreclosure sale has already been scheduled. 
But, it’s temporary. 
What happens next depends in part on which type of bankruptcy you file.


Chapter 7 Bankruptcy and Foreclosure

Chapter 7 bankruptcy generally isn’t a long-term solution to mortgage problems. While the automatic stay in a Chapter 7 case puts a hold on the process, Chapter 7 doesn’t provide a mechanism for fixing mortgage default. As a secured debt, a mortgage loan can’t simply be wiped out in bankruptcy–unless, of course, you surrender the house.

A Chapter 7 case may provide an opportunity to negotiate with the lender, or to surrender the house and avoid a deficiency judgment if the property sells for less than you owe. Arizona protects homeowners from deficiency judgments on mortgage loans used to purchase the home. But, some landlords or individual homeowners who took out home equity loans for other purposes may be at risk.

The more significant possibility for avoiding foreclosure lies in Chapter 13 bankruptcy. 

Chapter 13 Bankruptcy and Foreclosure

Chapter 13 bankruptcy works differently than Chapter 7, and often provides a way for debtors to manage secured debt. In the case of a mortgage default, the homeowner might be able to pay off the past-due balance over time, in a three to five year repayment plan. If the court confirms the plan and the debtor fulfills their obligations under the plan, the automatic stay typically remains in effect. That means no collection action on that past due balance as it’s paid down over time. 

In some cases, the balance or interest rate may even be reduced. 


But, Chapter 13 won’t save every home in foreclosure. The homeowner must have adequate income to make plan payments and current obligations moving forward. The proposed repayment plan must be approved by the court, and creditors will have an opportunity to object. 
The best source of information about whether Chapter 13 bankruptcy might save your home, and what other options may be available if you are facing foreclosure, is to talk to an experienced Tucson bankruptcy attorney. You can schedule a consultation with attorney Jeffrey Judge right now. Just call 520-815-1000 or fill out the contact form on this site. If you’re facing foreclosure, you can’t afford to delay.

Jeffrey Jeffrey

Jeffrey Judge

Mr. Judge has been licensed to practice law in Southern Arizona and Tucson since 1994 and has extensive trial experience. Since 2003, he has focused on helping people and their families who face real debt problems in Southern Arizona and Tucson. He understands the frustration and aggravation caused by crushing financial problems that lead people to file for bankruptcy protection. Mr. Judge is committed to help people bring their Financial Future back under control and regain some Peace of Mind.