Foreclosure and bankruptcy are two words that most homeowners dread and try to avoid at all costs. If you are behind on your mortgage and trying to figure out your finances, you may want to negotiate with your lender on a short sale or loan modification. Unfortunately most lenders will not be easy to negotiate with and may start the foreclosure process anyway, as stipulated in the mortgage contract. The foreclosure process involves the creditor repossessing and usually selling the house at a public auction. The proceeds from that auction are used to repay the mortgage and any legal costs. This process can be lengthy – two or even three months after missed payments, sometimes up to a year. So how could bankruptcy impact or even help in the case of a a foreclosure?
The Automatic Stay –
Once you file for bankruptcy, either Chapter 13 or Chapter 7, the automatic stay goes into effect which stops all creditor activity against a debtor, including a foreclosure sale. So, if a foreclosure sale has been scheduled for your home, it will be postponed, by law, until the bankruptcy is finalized or the creditor has been granted relief from the automatic stay. This usually takes about three to four months. The exceptions to this rule would be if the lender files a motion to Lift the Stay or if the Foreclosure notice has already been filed in some cases.
Chapter 13 and Foreclosure –
Chapter 13 bankruptcy allows you to set up a repayment plan to pay off the past due payments, or “arrearage” while keeping one’s payments current. You can propose the length of time for repayment, but keep in mind that you’ll need sufficient income to pay BOTH your past due payments AND your current mortgage payments at the same time. So long as you make all of the required payments for the length of the repayment plan, you will avoid foreclosure and be able to stay in your home. Chapter 13 may, in some circumstances, also help you eliminate the payments on your second or third mortgage.
Consult a qualified bankruptcy attorney to discuss your options when it comes to saving your house from foreclosure. Levine Law Office can guide you and give you the right information to make your decision.