Bankruptcy can help a Harrisburg family protect their home from foreclosure. However, it is important for Pennsylvania residents to understand in general what a bankruptcy can and cannot do in this respect.
The automatic say can buy a family some additional time
The filing of a bankruptcy, including under either Chapter 7 or Chapter 13, will usually mean the debtor gets the benefit of what is called the automatic stay.
The automatic stay is a court order which requires creditors, including banks and other mortgage lenders, not to take further collection actions until they have permission to do so or until the bankruptcy is over.
In practice, this means that a bank will have to cancel any pending sheriff’s sale and stop other collection efforts. While the stay remains in force, a family has additional time to work with the bank, raise additional money or, at worst, come up with some other living arrangements.
A Chapter 7 bankruptcy can offer limited long-term help
The more common Chapter 7 bankruptcy can also offer limited help in the long-term to Pennsylvania families.
For example, a discharge from other debt may free up some of a family’s income that they can devote to catching up on house payments.
The discharge also protects the family from garnishments, account freezes and other personal collection actions at the hands of creditors, including the mortgage lender.
However, debtors need to remember that, at the end of the day, a Chapter 7 bankruptcy can slow down but will not stop a foreclosure. For example, a bank can always wait until the end of the bankruptcy proceeding and then foreclose.
Chapter 13 bankruptcy is a good option for protecting a home
On the other hand, a Chapter 13 bankruptcy allows a family to set up a payment plan which can include catch-up payments on a delinquent mortgage as well as ongoing house payments. The court must approve the debtors’ repayment plan, and the debtors must faithfully make payments.
If these conditions are met, then at the end of the Chapter 13 repayment plan, a debtor should no longer be in default.