What is the Automatic Stay? Can I Stop a Foreclosure By Filing Bankruptcy?

The automatic stay plays a pivotal role in the bankruptcy filing process, offering instant respite for debtors or businesses the instant a bankruptcy petition is lodged. This legal safeguard stops most actions by creditors against the debtor, their assets, and the assets within the bankruptcy estate. The automatic stay activates immediately, requiring no court hearing or order, upon the filing of the bankruptcy case. Key actions it halts include:

  • Ceasing Foreclosure Activities: The automatic stay acts as a temporary suspension of all foreclosure activities on the debtor’s residence, providing a crucial reprieve for homeowners in financial distress. However, its ability to completely halt a foreclosure may be lessened if proceedings are already in an advanced stage, underscoring the importance of timely action when considering bankruptcy as a solution.

  • Delaying Eviction Processes: The automatic stay serves as a potentially effective measure for delaying eviction processes, offering tenants a temporary shield against being removed from their homes. Nevertheless, it’s important to note that recent changes in the law may diminish the automatic stay’s effectiveness in delaying evictions, particularly if a court has already issued a judgment for possession against the tenant. This highlights the critical nature of seeking legal intervention early in the eviction process.

  • Halting Property Repossession: Creditors are required to stop repossessing property, like vehicles or other personal belongings, over unpaid debts.

  • Ceasing Wage Garnishments: Most wage garnishment actions are immediately stopped, permitting debtors to retain their entire salary, with exceptions for specific family support duties.

  • Suspending Lawsuits: It freezes most debt collection lawsuits against the debtor, excluding cases related to paternity, child custody, or support, though not all legal actions are stopped.

Stopping Foreclosure with Bankruptcy

Initiating bankruptcy proceedings can effectively suspend the foreclosure process on your residence through the implementation of the automatic stay mechanism. This provision is activated the moment you file for either Chapter 7 or Chapter 13 bankruptcy, immediately freezing the efforts of most creditors to pursue collection actions against you, including any ongoing foreclosure activities targeting your property.

Here’s how it works:

  • Chapter 7 Bankruptcy: Although a Chapter 7 claim can pause foreclosure temporarily due to the automatic stay, it may serve as a temporary fix. Given that Chapter 7 involves asset liquidation, you might still face the risk of losing your home once the bankruptcy case is closed and the automatic stay lifted unless arrangements to maintain your home are made or the mortgage lender finalizes the foreclosure process.
  • Chapter 13 Bankruptcy: This route is typically more beneficial for halting foreclosure and retaining your home over the long haul. Chapter 13 allows for the reorganization of debts and the formulation of a repayment strategy to address overdue mortgage payments over an extended period (usually three to five years), all while keeping up with current mortgage payments throughout the bankruptcy. Compliance with your repayment plan terms can prevent foreclosure.

Secure Your Home

If you’re on the brink of losing your home to foreclosure, Loris Bankruptcy Law Firm stands ready to assist with the powerful tool of the automatic stay in bankruptcy proceedings. This critical legal provision immediately stops foreclosure actions, providing a valuable window to reevaluate and stabilize your financial standing. Our bankruptcy attorneys in Mobile, Alabama, deliver straightforward guidance and develop customized strategies aimed at safeguarding your residence and facilitating your path to financial health. 

Bankruptcy lawyers in Mobile, AL are committed to helping you secure a more promising financial future. Reach out to us today to discover the full potential of the automatic stay in securing your home and turning around your financial predicament.