Bankruptcy

Bankruptcy is a legal process under federal law that allows individuals or households to seek relief from certain debts. In foreclosure-related situations, bankruptcy may be used to pause or temporarily stop collection activity — including a foreclosure sale — through a court-ordered automatic stay. The impact of bankruptcy depends on the type filed and the homeowner’s specific financial circumstances. The most common forms of consumer bankruptcy are Chapter 7 and Chapter 13:

• Chapter 7 generally involves the liquidation of certain non-exempt assets to discharge eligible debts.
   
• Chapter 13 typically involves a court-approved repayment plan over a defined period of time. Eligibility, outcomes, and timelines are determined through the bankruptcy court process.
   

Because bankruptcy is a court-supervised legal proceeding, it requires formal filings, strict deadlines, and ongoing compliance with court rules. It also carries long-term financial and credit considerations, which may vary depending on the type of bankruptcy filed and how the case is resolved.

• May temporarily pause foreclosure proceedings through a court-ordered automatic stay 
• Is often considered when other foreclosure-related options are no longer available
• Can provide structured time to evaluate financial and legal alternatives
• May address multiple debts simultaneously, depending on the type of filing
• Provides court-supervised organization and oversight during periods of financial distress
   

• Involves a formal legal process with ongoing court oversight
• May result in long-term credit and financial impact, depending on the filing type
• Does not permanently resolve all debts or foreclosure actions in every case
• May require ongoing obligations under a court-approved repayment plan
• Eligibility, timelines, and outcomes vary based on income, assets, and prior bankruptcy filings
   

Because bankruptcy involves legal proceedings and long-term financial considerations, some homeowners choose to explore other potential alternatives as part of their overall evaluation. Understanding how bankruptcy generally works — and how it may interact with foreclosure timelines — can help homeowners approach discussions with qualified legal and financial professionals with clearer expectations.