Is Bankruptcy a Valid Way to Stop Foreclosure of Your Home?

 Posted on February 11, 2025 in Foreclosure

Illinois is one of the top three states with the highest foreclosure rates, with one in 2,837 housing units in foreclosure as of August 2024. Illinois has a high percentage of underwater mortgages left over from the last housing crisis, plus there are lingering fears about recession and the potential loss of jobs under the new administration.

If you are facing home foreclosure, it can be an extremely difficult time in your life. The thought of you and your family potentially being homeless is a frightening thought, especially if you are behind on your mortgage because of the loss of a job or an illness that has generated huge medical expenses.

While there are many different ways to approach a home foreclosure, the best step you can take is to speak to an experienced Grayslake, IL foreclosure attorney. Your attorney can look at your individual situation and help you determine whether filing for bankruptcy is the best option or whether there are better options available.

What You Should Know About Foreclosure

State laws govern foreclosures, which usually begin in Illinois after you are behind three or four payments on your mortgage. Your lender will file a lawsuit against you, asking for the mortgage balance. Once the lender obtains a judgment, your home can be taken back, becoming the lender’s property.

In most cases, the lender will sell the home and apply the proceeds toward what you owe on your mortgage. If the lender gets more from the sale of your home than you owe, then the mortgage is paid off, but if the lender does not get as much for the home as you owe, you would still be responsible for the "deficiency balance."

What About Bankruptcy to Keep Your Home?

If you are behind on your mortgage, you may also be behind on all your other bills and expenses. If you qualify for bankruptcy, you could receive an injunction known as an "automatic stay" that orders your creditors to cease collection attempts. This automatic stay will not entirely stop the foreclosure proceeding, but it can give you a little time to figure out what to do.

In some cases, you could have as much as 3-4 months before the stay lifts – unless your lender files a motion to have the automatic stay lifted. In this case, it should still take at least a couple of months. The type of bankruptcy you file will determine the final outcome of your home foreclosure. If you qualify for Chapter 7 bankruptcy and your lender files a motion to lift the stay, you will likely lose your home to foreclosure.

Chapter 13 bankruptcy, on the other hand, may offer you a way to stop foreclosure and keep your home. Chapter 13 bankruptcy allows you to restructure your debt, creating a monthly payment plan that can last for three to five years. You can arrange with the court to pay the amount you are in arrears for your mortgage over a period of time. If you are able to afford your monthly mortgage payments under a Chapter 13 repayment plan, there will be no foreclosure of your home.  

If you have taken out a second (or third) mortgage on your home, you may want to ask about "lien stripping," which is sometimes possible for those whose mortgage exceeds the value of their home. Lien stripping will recategorize the second and third mortgages as unsecured debt, making them the last priority for payoff under Chapter 13. If the value of your home has increased, lien stripping is not likely to be an option.

Contact a Lake County, IL Foreclosure Attorney

Filing for bankruptcy is a serious step that can have long-term consequences. Your foreclosure attorney may be able to help you arrange something that will allow you to keep your home and is not as final as bankruptcy. When you choose Gurnee, IL foreclosure attorneys from Newland & Newland, LLP, you will have the benefit of many decades of experience with attorneys who are local to Illinois and put their clients and communities first. Call 847-549-0000 to schedule your free consultation.