Foreclosure & Bankruptcy
How Bankruptcy Can Help With Foreclosure
Depending on your circumstances, bankruptcy can help you to avoid or delay foreclosure. If you haven’t lost your house yet, but are behind in the payments, it is important to meet with an experienced bankruptcy attorney as quickly as you can. If your foreclosure is underway, bankruptcy can give you some extra time to save money and find a nice place to rent, and may eliminate some of the lingering debts related to the home. Either way, a bankruptcy attorney can help you understand and evaluate your options.
The most important thing to keep in mind is that if you want to keep your house, you still have to pay for it! Bankruptcy can help you catch up on your mortgage payments.
Delaying Foreclosure: The Automatic Stay
When you file either a Chapter 13 or Chapter 7 bankruptcy, the court automatically applies the "automatic stay." The automatic stay directs your creditors to immediately stop all collection activities. If your home is scheduled for a foreclosure sale, the sale will be postponed while the bankruptcy is pending. There is one exceptionto this general rule:
Motion for Relief from Stay. Your lender has the right to request the bankruptcy court's permission to proceed with the sale by filing a “motion for relief from stay”. If the motion is granted, the lender may proceed with the foreclosure during your bankruptcy. But even then, the bankruptcy will typically postpone the sale by at least two months, or even more if the lender is slow in pursuing the motion for relief from the automatic stay. If you remain current on your mortgage payments, your lender is not likely to file a Motion for Relief from Stay.
How Chapter 7 Bankruptcy Can Help
Chapter 7 Bankruptcy does not permanently stop a home foreclosure. However, Chapter 7 Bankruptcy can give you relief from unsecured creditors, like credit cards. By eliminating most, if not all, of your unsecured debt, you will have more money in your budget to make your mortgage payments. Staying current on your mortgage payment will allow most people to keep their homes.
How Chapter 13 Bankruptcy Can Help
Chapter 13 Bankruptcy is like a financial reorganization plan for consumers. Chapter 13 Bankruptcy enables you to pay creditors part or all of what you owe them on terms that are favorable to you, the debtor. These terms are written out in a Chapter 13 payment plan, which the Bankruptcy Court approves. Once the Bankruptcy Court approves the plan, all creditors are obligated to follow the terms of the plan.
This chapter of bankruptcy allows the Debtor to keep secured property that has delinquent payments. Under Chapter 13, Debtors can negotiate with their secured creditors and arrange a payment plan to repay delinquent payments over time, usually 3-5 years. As long as Debtors continue to stay current on their Chapter 13 plan payments, the lender cannot repossess or foreclose on the secured property.
Loan Modification
A loan modification can have serious implications on your bankruptcy. Therefore, if you are considering a loan modification or possibly to file for bankruptcy, it is very important to sit down with an experienced bankruptcy attorney and discuss your options prior to entering into a loan modification with your lender.
