Should You Use Bankruptcy to Stop Foreclosure?

Mia Arnold

Hey everyone, welcome back to Before the Auction. I’m Mia, and I’m here with our resident expert Don DeRosa. Today we’re diving into a topic that comes up a lot when people are facing foreclosure—bankruptcy. It’s one of those words that sounds scary, but it’s also something people hear about as a way to stop the foreclosure train, at least for a while.

Don DeRosa

Yeah, and I think a lot of folks think bankruptcy is like hitting a big red pause button on everything. And, well, in some ways, it kind of is. When you file for bankruptcy, there’s this thing called an “automatic stay.” That basically means creditors—like your mortgage company—have to stop all collection efforts, including the foreclosure process, at least temporarily.

Mia Arnold

Right, but it’s not a magic wand. There are two main types of bankruptcy people talk about: Chapter 7 and Chapter 13. Chapter 7 is what they call liquidation. It’s usually about wiping out unsecured debts, but it doesn’t always save your house. Chapter 13 is more like a reorganization—you set up a payment plan to catch up on what you owe, and that can help you keep your home if you can stick to the plan.

Don DeRosa

Exactly. And I’ve seen people get confused about which one does what. Chapter 7 might delay the foreclosure, but unless you can catch up on payments, you could still lose the house. Chapter 13 gives you a shot at keeping it, but you gotta be able to make those payments. It’s not easy for everyone.

Mia Arnold

I remember a seller I worked with—she filed for bankruptcy literally the day before her auction. It did stop the sale, but only for a bit. The court put everything on hold, but then she had to figure out her next steps fast. It bought her some time, but it wasn’t a permanent fix. So, it’s important to know what you’re really getting when you file.

Don DeRosa

So, let’s talk about the good and the bad. The pros first—bankruptcy can buy you time. That’s huge if you’re getting those nonstop calls from creditors or you just need a breather to figure things out. Sometimes, it’s the only way to stop the auction and get a little space to regroup. And with Chapter 13, you might even be able to keep your home if you can stick to the plan.

Mia Arnold

Yeah, and honestly, just having the phone stop ringing can be a relief. But there are some real downsides, too. Bankruptcy hits your credit hard, and it sticks around for years. There are legal costs, and with Chapter 13, those payment plans can be tough to keep up with. If you miss payments, you could end up right back where you started.

Don DeRosa

I had a client once who thought bankruptcy would solve everything. They were surprised by how strict the court was about the payment plan. It wasn’t just “file and forget”—they had to stick to every deadline, every payment. And if they slipped up, the foreclosure process started right back up again. So, it’s not a free pass, but for some people, it’s the lifeline they need.

Mia Arnold

Timing is everything with bankruptcy. If you wait until the last minute, like literally the day before auction, you might get a delay, but you’re also scrambling. And sometimes, waiting too long means you run out of options. People think bankruptcy will always save the house, but that’s not guaranteed. The court process can be confusing, and if you don’t follow the rules, you could lose your chance.

Don DeRosa

Yeah, and there are a lot of misconceptions out there. Some folks think just filing is enough, but you really need to understand what happens next. The court isn’t gonna just hand you your house back. You need a plan. That’s why it’s so important to get professional advice. There are resources out there—like Havenguard.org—where you can get more info and talk to someone who knows the ropes. And always ask questions before you make a move.

Mia Arnold

If you’re even thinking about bankruptcy, the first step is to talk to a qualified bankruptcy attorney. They’ll help you figure out if you even qualify and what it means for your specific situation. Don’t just Google it and hope for the best.

Don DeRosa

And you’ll want to get your paperwork in order. That means income statements, details on your debts, a list of your assets—the whole nine yards. The more organized you are, the smoother the process will go. It’s not fun, but it’s necessary.

Mia Arnold

Also, do your homework on attorneys and financial advisors. Not all of them are created equal. Look for people with good reviews, who specialize in bankruptcy, and who’ll actually listen to your situation. You want someone who’s gonna guide you, not just push you through the process.

Don DeRosa

So, after you file, there’s a mandatory credit counseling session you have to complete. It’s not just a box to check—it can actually help you start thinking about your financial recovery plan. And, believe it or not, a bankruptcy discharge can eventually help your credit score, but there’s gonna be a hit at first. You gotta be ready for that.

Mia Arnold

Yeah, and if you’re hoping to keep your home, you might have to deal with something called a reaffirmation agreement or a property reassessment. That’s basically a legal way of saying, “Yes, I’m keeping this house, and I understand what I’m signing up for.” Make sure you know what you’re agreeing to, because it’s a big commitment.

Mia Arnold

Once you’re through the bankruptcy process, it’s all about rebuilding. Start by making on-time payments on any debts you still have, and keep an eye on your credit report for mistakes. Even little errors can slow down your recovery.

Don DeRosa

And don’t be afraid to look into things like secured credit cards or credit-builder loans. They’re not glamorous, but they can help you show lenders you’re serious about getting back on track. Plus, there are financial education courses out there—take advantage of them. Learning how to budget and manage debt is key to staying out of trouble down the road.

Don DeRosa

Long-term, you gotta have a realistic budget. Prioritize paying down any debts you’ve got left, and keep checking your credit report to see how you’re doing. If you spot any errors, dispute them right away. Don’t just assume everything’s correct.

Mia Arnold

And honestly, don’t try to do it all alone. Build a support network—financial advisors, credit counselors, even peer groups. Having people to lean on and get advice from makes a huge difference. Recovery is a process, and it’s easier when you’ve got help.

Don DeRosa

Absolutely. And remember, bankruptcy isn’t the end of the road. For some, it’s a fresh start. For others, it’s just one step in a bigger plan. Either way, you’ve got options, and you don’t have to figure it out by yourself.

Mia Arnold

That’s a great note to end on. If you’re facing foreclosure or just feeling overwhelmed, check out Haven Guard dot org for more info and support. And as always, talk to a professional before making any big decisions. Don, thanks for sharing your insights today.

Don DeRosa

Thanks, Mia. Always good chatting with you. And thanks to everyone for listening. We’ll be back soon with more ways to help you find options—before the auction. Take care, everybody.

Mia Arnold

Bye, everyone! See you next time.