The repossession of a home can be disastrous on several levels, from a homeowner’s seriously damaged credit rating to the displacement of a family. However, mortgage lenders are no different than other creditors. Lending institutions want their money and take action when New York consumers fail to make payments on time.

Foreclosure can begin as soon as two months after a homeowner gets behind on payments. Lenders sometimes offer escape valves like a temporary reprieve from making payments or a loan modification. Less appealing alternatives are short sales — a lender-approved sale of property for less than the loan amount owed — or a deed in lieu of foreclosure, which involves turning over the deed to the lender.

More often than not, the lender moves forward with foreclosure, the process of repossessing and auctioning off a property to recover losses. The possibility of foreclosure forces many consumers to consider personal bankruptcy, which as ominous as it sounds, stops the foreclosure process. Once a Chapter 7 or Chapter 13 bankruptcy petition is filed, a court will issue an automatic stay preventing creditors from taking collection actions, like foreclosure, against a debtor.

The stay buys time until the bankruptcy ends but may not prevent the eventual loss of a home. Bankruptcy relieves debt but does not discharge liens, which can plague debtors whose assets are sold to pay creditors in Chapter 7 bankruptcy. Chapter 13 filers, who live up to court-approved terms of repaying outstanding debt, are more likely to avoid foreclosure and hang onto their homes.

Attorneys with Corash & Hollender caution clients about the importance of proper timing for a bankruptcy filing. In some instances, a mortgage lender may convince a bankruptcy court to lift a stay and allow the foreclosure process to continue. This may occur if a consumer waits to submit a bankruptcy petition until after a foreclosure notice is filed.