Foreclosure Law Definitions

Bankruptcy

Bankruptcy is a legal proceeding in which an individual who cannot pay his or her bills can get a fresh financial start.  The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. 

Filing bankruptcy immediately stops all of a homeowner’s creditors from seeking to collect debts from him or her (including his or her mortgage), at least until all the homeowner’s debts are sorted out according to the law. 

It is important to understand that bankruptcy laws and exemptions differ from state to state.  The homeowner must also understand the different types of bankruptcies and what the effects of filing bankruptcy has on his or her future personal finances. 

Filing for bankruptcy is not as easy as one may think to stop foreclosure.  New bankruptcy laws went into effect October 17, 2005.  The new bankruptcy laws require, among other things, individuals to go thru a minimum three-month credit counseling period before filing for bankruptcy.  These new laws were put into affect in large part to stop people from abusing the bankruptcy laws by filing for bankruptcy a few days before his or her foreclosure.

To learn more about the new bankruptcy laws and how it can affect a foreclosure, click here.

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