Are You Experiencing Foreclosure? How Bankruptcy can help

Many Americans are behind on their mortgage payments. Some mortgage companies and lenders may be open to working with homeowners to make deals, such as a short-term sale or modification of a loan. Many lenders won’t. This is how bankruptcy can help lenders when they begin the foreclosure process.

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A lender will likely start the foreclosure process if someone is in serious default on their mortgage payments. This is as per the mortgage contract. The creditor will repossess the house and then sell it at an auction. This auction generates enough money to pay the mortgage back and cover any legal fees.

It takes time to go through the foreclosure process. The majority of creditors won’t begin foreclosing homeowners until they are two to three months behind in their mortgage payments. The homeowner has time to think about other options to foreclosure such as loan forgiveness, short sale or deed-in- lieu of foreclosure. If all these options fail, or are not ideal, bankruptcy might be an option. For a consultation, contact a qualified attorney in foreclosure.

Bankruptcy vs. Foreclosure

There are two options: to declare bankruptcy or go through foreclosure. This depends on your income, debts and living expenses. You may be able keep your home if you file bankruptcy.

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These are just a few of the differences between them:

  • Who initiates the case

You will file a bankruptcy petition if you are filing for bankruptcy. The lender initiates the process to repossess and sale of the property.

  • What happens after the case is closed?

Although there is a possibility that your home can be kept after bankruptcy, it is not always possible. You may have to give up your home if you are unable to pay your mortgage after bankruptcy.

  • Why not file for bankruptcy rather than accepting foreclosure?

The difference is in what happens after the property has been sold. If the proceeds from the sale do not cover the debt, it is possible to owe money in a foreclosure. All debts in bankruptcy will be discharged once the case is closed.

  • Who controls the property?

Your creditor will take control of the property once a foreclosure proceeding has been initiated. However, if you file bankruptcy, you might be able to keep control of the property up until the bankruptcy case is resolved through the “automatic stop” order.

  • How to delay foreclosure with an automatic stay

A common question is, “Can filing bankruptcy stop foreclosure?” Bankruptcy can be a tool that will help you save your home if you’re facing foreclosure.

After you file bankruptcy either Chapter 13 (or Chapter 7), the court issues an Order for Relief. This order gives you an “automatic stop” which directs creditors to cease all collection efforts. If a foreclosure sale is scheduled for your house, it will be delayed until bankruptcy proceedings are finalized. It usually takes three to four months.

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This buying-time rule is not applicable to two exceptions:

If the lender files a motion for the lifting of the stay: A motion to lift a stay is filed by the lender asking permission from the bankruptcy court for the foreclosure sale to proceed.You may not get the additional three to four month extension if this request is granted. The sale is normally delayed by bankruptcy for two to four months, or longer, if the lender doesn’t act quickly enough to lift the stay.

If the foreclosure notice is already filed: Most states have laws requiring lenders to give homeowners a certain notice period before they sell their property.This advance notice will not be stopped by a bankruptcy filing.

California law, for example, requires that a lender give the homeowner at most three months notice before the homeowner sells their home. After being in bankruptcy for one month, a California resident would receive a three-month notice. The lender could then file a motion for the lifting of the stay and request permission from the court to schedule the foreclosure.

  • How Chapter 13 Bankruptcy Can Help You
  • This is what Chapter 13 looks like for foreclosure and bankruptcy:

Chapter 13 bankruptcy permits you to create a repayment plan to repay past-due payments. While you can choose the repayment period, remember that you will need enough income to cover both your past-due and current mortgage payments. You will be able to keep your home if you make all the payments required for the repayment period.

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Chapter 13 may also be able to eliminate 2nd or 3rd mortgage payments. Chapter 13 allows bankruptcy courts to reclassify second and third mortgages as unsecure debt. Chapter 13 gives unsecured debt last priority, and it usually doesn’t have to be repaid. If your first mortgage is secured by your entire home’s value, this means that there is no equity left to secure your second and third mortgages.