Mortgage Loans In Bankruptcy And Foreclosure

For many people who are having a difficult time paying their monthly mortgage payment, the terms bankruptcy and foreclosure keep coming up. Often these people want to know how mortgage loans are treated in bankruptcy and in foreclosure and which is best for them.

Actually bankruptcy and foreclosure are two completely different things even though they may interact with each other.

Bankruptcy is when a person files an action in the United States Bankruptcy Court seeking legal protection from creditors. These actions are filed in the federal district court which has jurisdiction over the area in which the person lives. The legal protection offered to people concerning their mortgages depends on the type of case which is filed. There are two main types of bankruptcy that consumers use: Chapter 7 and Chapter 13.

With a Chapter 7 bankruptcy, there is an automatic stay which stops a lender from pursuing the foreclosure and or collection of a mortgage debt. The stay can be lifted by the bankruptcy court (and it usually is lifted) upon motion of the lender so that the lender can pursue foreclosure. But the automatic stay does give the borrower more time.

With a Chapter 13 bankruptcy, there is also the automatic stay. But the borrower may be given additional time to pay the arrearage amount owed on the mortgage.

With either type of bankruptcy, the mortgage lender, who is a secured lender, will have to be paid. In the end, the lender will either be paid or will have the stay lifted, pursue foreclosure, and get the house which secures the mortgage.

Foreclosure is when a mortgage lender files an action to enforce its' claim or lien to a house because the borrower has not made the monthly mortgage payments. These legal actions are subject to state laws and are either (1) a non-judicial type of action or (2) are legal actions filed in state court. There are two legal theories upon which foreclosure is based, but with either theory, the result is the same: the mortgage lender will either be paid or get the house.

Notice that bankruptcy is filed by a borrower in federal district court seeking protection from creditors such as mortgage lenders while foreclosure is subject to state laws and is pursued by the lender seeking to enforce its' claim or lien. These are two different actions, one is filed by the borrower, the other is filed by the lender.

This article is general information. For specific advice on either bankruptcy or foreclosure, talk with a lawyer licensed in your state.

Stop! Don't blindly chase any option to stop foreclosure. See stop foreclosure options to learn what options you have in your situation. Remember, what works in one person's situation, may or may not work in your situation to stop, avoid, and prevent foreclosure. For more general information, see Stop Foreclosure - Five Options You Need To Know.

You may republish this article as long as the wording is not changed and all links remain active.