Can Bankruptcy Prevent Foreclosure in Vermont?

Yes, declaring bankruptcy can temporarily stop a foreclosure due to what is known as an "automatic stay." This is a provision in U.S. bankruptcy law that temporarily halts creditors, including mortgage lenders, from pursuing collections or legal actions against a debtor who has filed for bankruptcy.

Here's a bit more detail on how this works with the two types of personal bankruptcy:

1. Chapter 7 Bankruptcy: Also known as a "liquidation bankruptcy," Chapter 7 can temporarily stop the foreclosure process, but it may not prevent the eventual foreclosure of the home. Once you file for Chapter 7, the automatic stay goes into effect, halting foreclosure temporarily. However, the lender can file a motion for relief from the automatic stay, and if granted by the bankruptcy court, the lender can proceed with the foreclosure. It's also important to note that Chapter 7 bankruptcy generally involves the liquidation of the debtor's assets to repay creditors, which may include the home in question, depending on the amount of unencumbered equity in the home and applicable state exemption laws.

2. Chapter 13 Bankruptcy: Sometimes referred to as a "wage earner's plan," Chapter 13 allows individuals with regular income to develop a plan to repay all or part of their debts over a period of three to five years. This type of bankruptcy can be more effective in stopping foreclosure and allowing individuals to keep their homes. When you file for Chapter 13, you propose a repayment plan that includes your mortgage arrears (past-due amounts). As long as you keep up with your plan's payments and your current mortgage payments, you may be able to avoid foreclosure.