Personal finance
Why Only Bankruptcy Stops a Foreclosure
Bankruptcy attorney Barry Levine explains how foreclosures really unfold, why mortgage modifications stall, and why a filing is the one step that halts the process.
Foreclosure Help: Tailoring Solutions with Barry Levine
Video from Barry Levine.
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What can homeowners do to stop a foreclosure?
According to bankruptcy attorney Barry Levine, the only thing that reliably stops a foreclosure is a bankruptcy filing. The filing triggers the automatic stay, which halts the foreclosure and other collection actions at once. A Chapter 13 can then help a homeowner keep the house, while a Chapter 7 still buys breathing space to decide what comes next, including a sale.
Most homeowners who lose a house to foreclosure do not get there in a single dramatic moment. Barry Levine, a Massachusetts bankruptcy attorney with more than 44 years of practice, describes a slow slide instead: one missed payment, then two, then a bank that refuses partial payments until the arrears run eight or nine months deep.
In a conversation with host Kevin Rosenquist on Through the Looking Glass, Levine walks through what homeowners misunderstand about that process, why the popular alternatives tend to disappoint, and what actually changes the outcome. His answer is blunt and specific, and it runs against much of what people hear from advertisements and from friends.
This article sets out his view in plain terms: how a foreclosure really unfolds, why mortgage modifications so often go nowhere, and why he sees a bankruptcy filing as the one step that halts the process while a homeowner works out whether to keep the house, sell it, or start again.
Key takeaways
- A foreclosure builds slowly through missed payments, and banks usually refuse partial payments once a homeowner falls behind.
- Foreclosure never happens overnight; notices arrive at every step, and ignoring certified mail only makes matters worse.
- Barry Levine sees bankruptcy as the only thing that stops a foreclosure, through the automatic stay that halts it at once.
- After a discharge, steady earners can rebuild credit, because lenders know they cannot file again for eight years.
1. How a foreclosure really unfolds
Levine says there is rarely a single decision point. A homeowner misses one payment, then a second, and the bank will not accept a partial payment unless the borrower can walk in with every penny owed. Before long the arrears are eight or nine payments deep, and the problem has grown far beyond what a normal month's income can fix.
He also pushes back on the fear that it all happens overnight. People come to his office saying their house is being foreclosed on tomorrow, and he explains that there are notices at every step of the way. The real danger is what he calls the ostrich client, the person who assumes that ignoring certified mail will make the problem go away.
Even after a foreclosure sale, he says, the homeowner does not have to leave the house on the spot. Someone still has to evict them, and while a former owner has little standing to stop an eviction, it remains a legal process with its own steps. Eventually the family has to move out, but it is not necessarily the end of the world.
2. Why modifications and delay deals disappoint
Levine does not take on mortgage modification work, and he is frank about why. He compares the process to Sisyphus rolling a rock up a hill only to watch it roll back down. Clients tell him they filed the same documents twelve times, the bank lost them eleven times, and when the paperwork finally surfaced it was already months out of date.
He finds one pattern especially telling. Homeowners who were refused a modification before bankruptcy sometimes see the bank change its tune once a case is filed, even though nothing about the house, the mortgage or the household finances has changed. To him that shift makes absolutely no sense on the numbers, which is why he puts his faith in the filing rather than the negotiation.
Delay deals are another trap. When a sale is scheduled and a homeowner resists bankruptcy, a bank may agree to postpone the foreclosure in exchange for a payment. Levine notes that this money usually never sees the light of day on the loan; it simply buys the privilege of continuing the foreclosure. Without real money behind it, he says, there is little else a homeowner can do.
3. What a bankruptcy filing changes for a homeowner
Once the petition is filed, Levine explains, the automatic stay goes into effect and the foreclosure is stopped in its tracks, along with any other actions creditors are taking. Whatever happens next needs the approval of the bankruptcy court. Some judges lean toward consumers and some toward banks, but the homeowner now has an experienced advocate dealing with reality rather than facing a banker alone.
That breathing space is what allows a real plan. A Chapter 13 can be used to save the house, while a Chapter 7 still pauses the pressure. If income has fallen below what the mortgages require, selling may be the honest answer, and in Massachusetts a homestead exemption of half a million dollars can protect much of an owner's equity in that sale.
Levine treats the choice as a business decision: remain an indentured servant to creditors or start fresh. He adds that a discharge is not the financial exile people fear. Because a debtor cannot file again for eight years, lenders often see a steady earner as a good credit risk, and secured credit cards or collateralized loans can help rebuild a credit score.
