One reason that many New Jersey residents may consider bankruptcy as a viable option for debt relief is that they have received notice that they may lose their home in a foreclosure.
In many cases, people start thinking about bankruptcy because they have tried everything to work with their lender, but a foreclosure sale is only a few days or weeks away.
Both Chapter 7 and Chapter 13 bankruptcy can temporarily stop foreclosure
When a person files bankruptcy under either Chapter 7 or Chapter 13, an automatic stay will usually apply to stop all collectors, including banks and other financial institutions, from taking collection actions.
In other words, for as long as the stay remains in effect, a bank cannot continue with the foreclosure and may even have to repeat some steps in the process.
A bankruptcy can thus provide a family with some valuable time. It is also possible that the bankruptcy will give a family enough breathing space through a discharge of other debts and allow the family to catch up.
However, only a Chapter 13 bankruptcy offers long-term protection
With respect to a Chapter 7, though, all a lender needs to do is wait for the process to conclude. They can then go forward with foreclosure. With permission from the court, they may be able to do so while the foreclosure is pending.
The reason is that while a Chapter 7 discharge will prevent the mortgage holder from garnishing wages or otherwise pursuing the family after the home gets sold, the bank still has the right to sell the home and keep the proceeds.
A Chapter 13, however, can be a means for permanently protecting the family home. As part of their repayment plan, if the family can successfully keep up with the mortgage and pay makeup payments, then the bank will not be able to foreclose because of the delinquency.