When people are having financial difficulties, there are two words that they may begin to hear more frequently. These words are bankruptcy and foreclosure. Although they know that both words are related to debt and financial challenges, they are not sure of the difference. The following information will provide more insight as well as inform you on how these two processes interact with each other.
What Is Bankruptcy?
Individuals and businesses file bankruptcy in federal bankruptcy court. The courts refer to the entity filing the petition as the debtor. The debtor must also file in the federal district court that is located in the area where the debtor lives.
There are two main purposes for filing bankruptcy. The first reason debtors file is because they are looking to get the court to discharge some or all of their debts. The second reason is that debtors are seeking protection from their creditors and they decide to declare bankruptcy.
Bankruptcy laws are federal laws, and aside from some exceptions, are in effect in all states. There is also a qualification process that debtors must pass before they can file for bankruptcy.
What Is Foreclosure?
The one major difference between bankruptcy and foreclosure is the initiator of the legal action. Bankruptcy filings are legal actions that are initiated by a debtor, but a foreclosure is a legal action that is initiated by a lender. The purpose of foreclosure is for either the mortgage lender to get the money that is owed to them, or to collect the collateral (residential or commercial property) that was used to secure the loan.
Foreclosure law is also considered state law, so it varies from state to state.
Both of these legal actions can and often interact. When a lender pursues foreclosure on a borrower, the borrower receives notice that the lender has started the process of repossessing the home. Once the foreclosure has begun, the borrower may decide to file for bankruptcy so they are protected by an automatic stay order. After the courts place this provision into effect, the foreclosure process must immediately stop. However, the automatic stay is only temporary.
Bankruptcy and Foreclosure Attorney
If you are facing bankruptcy and foreclosure is the reason why, you should consult with a knowledgeable bankruptcy attorney in your area. He or she will be able to provide you with specific information that is applicable to your case.
Are you facing foreclosure? Schedule a consultation with one of our experienced bankruptcy attorneys today.