How does bankruptcy impact garnishments and foreclosures?

On Behalf of | Jan 18, 2024 | chapter 7 |

Bankruptcy plays a significant role in addressing financial challenges, particularly in garnishments and foreclosures. When an individual files for bankruptcy, an automatic stay is immediately implemented.

This stay halts most collection activities, including garnishments and foreclosure proceedings. It provides a period of relief during which creditors can’t proceed with collection actions, allowing the debtor to reorganize or discharge their debts under bankruptcy.

Garnishments and foreclosures

The automatic stay immediately stops garnishments, which are court orders allowing creditors to take money directly from a debtor’s wages or bank accounts. This can provide significant relief to debtors, as garnishments can severely impact their ability to meet essential living expenses.

In the case of foreclosures, the automatic stay can temporarily halt the process, giving the debtor time to either negotiate with the lender or reorganize their finances. The impact of bankruptcy on foreclosures can vary depending on the type of bankruptcy filed and the specific circumstances of the debtor.

Bankruptcy’s effect on garnishments and foreclosures

While bankruptcy can stop most garnishments, it’s important to note that certain types may not be affected. For instance, garnishments for child support or alimony obligations typically continue, as these are considered priority debts. Still, those related to credit card debts, medical bills and personal loans will likely be halted.

Chapter 13 bankruptcy allows debtors to reorganize their debts and create a repayment plan, including past-due mortgage payments. The debtor can avoid foreclosure and keep their home by catching up on these payments over time.

Under Chapter 7 bankruptcy, the automatic stay can temporarily stop foreclosure. It may not provide a long-term solution if the debtor can’t catch up on their mortgage payments.

Understanding exactly how bankruptcy will affect a specific situation is critical, so anyone in this position should work with someone familiar with these matters.