Bankruptcy does not stop foreclosure permanently…but it does stop it immediately. What I mean by that is that bank’s are required by law to cease and desist all foreclosure activity upon the filing of a bankruptcy, it is generally called a ‘stay’. The reason being is that the property is technically not able to be transferred or conveyed because the asset is under the control of the Trustee of the Bankruptcy Court. Any transfer of title- to a bank or anyone else is considered fraudulent. A foreclosure is an effort by the bank to transfer title back to them.
So, the only way to get the property sold out of bankruptcy is to get the Trustee to agree to release it, they are only going to do that if they think that the house has no value to it, because the trustee is going to use your assets to pay your creditors. Your house has no value if your mortgage is more than the market value ( you are upside down. Generally though, when people are asking me this question what they are really wanting to know: “Will filing bankruptcy be a solution to my problem with this house?” The answer to that is no. The bankruptcy will resolve any issues regarding the bank pursuing a deficiency judgment against you so that is a plus. In Iowa, however, the majority of foreclosures don’t come with deficiencies anyway on first mortgages and foreclosure without redemption. As we discussed earlier, it will buy you some time.
The problem is that once the BK is done and discharged; the bank will start right back up with the foreclosure. Even if they can’t come after you, rest assured they will be coming after the house to repossess it at a sheriff sale. This will go on your record as a foreclosure against you. You will have to check that box on all credit applications where it asks if you have ever been through a foreclosure. That is why- if at all possible- do what can be done to get the house sold, so that you can avoid the foreclosure. Here is an article Submit that discusses your ability to get a loan later down the line depending on whether you have done a pre-foreclosure sale or let it go.
**The author is not an attorney, this should not be construed as legal advice, please consult with an attorney or qualified professional before making any decisions. This is for informational purposes only **
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