2017 saw the lowest number of foreclosures in the U.S. since 2005: 676,535 foreclosures. A foreclosure is when a homeowner defaults on their mortgage obligation usually when they miss three or more consecutive mortgage payments. The lender will then typically files a Notice of Default (NOD). The lender will then take possession of the property
sell it in order to pay off the balance of the loan. This may sound scary but rest assured; all is not lost. There are steps you can take to stop the foreclosure process, such as short sale or loan forbearance, among others. If these have failed, your last option may be filing for bankruptcy. In some cases, if you’re lucky, the lender will be willing to work out some repayment plan, so they won’t have to go through the trouble of finding a buyer, which takes time. Most lenders, however, may not be so understanding, in which case you may want to explore strategies to stop foreclosure. Let’s take a look at how and when bankruptcy may be one such viable option.
It’s worth mentioning that bankruptcy doesn’t just make your debts disappear and you never have to worry about them again. Quite the contrary, bankruptcy essentially buys you more time – three to four months in many cases – to look for a new job or get back on track after a temporary disability, financially speaking. Once your case has been considered for bankruptcy, it will be put in what’s called automatic stay. This means that creditors and lenders cannot contact you to collect on your debt, as it is now a matter of the court. However, some lenders may file what is called a motion for relief from stay, which will allow them to continue with the foreclosure process, regardless of your automatic stay status. Nevertheless, bankruptcy may still be worth considering.
There are two major types of bankruptcy: Chapter 7 and Chapter 13. Let’s explore which one may be right for you after all other alternatives to closure have failed:
• Chapter 7 – Chapter 7 bankruptcy is usually the quicker of the two and is geared more toward lower-income individuals. As previously mentioned, bankruptcy is just a roadblock to disrupt the collections process while you build up the funds to pay your debts. In the U.S., there is an extensive backlog on foreclosures, so your lender may be delayed in proceeding with the foreclosure process, depending on where you live.
• Chapter 13– On the other hand, Chapter 13 bankruptcy lasts anywhere from three to five years. Higher-income individuals will opt for this one, as they will pay back some percentage of the debts owed. As with Chapter 7 bankruptcy, an automatic stay will be implemented,as long as you make your mortgage payments on time for the duration of the repayment plan (3-5 years, depending). In Chapter 13, the total of the overdue mortgage payments may be split up into more manageable increments and added to the normal monthly payments, as opposed to one lump sum to be paid all at once.
While foreclosure is scary, there are alternatives to consider. As always, bankruptcy should be a last resort. If you find you’re falling behind on payments, you should contact your creditors and lenders as soon as possible to explain your situation and inquire about any options to get back on track. They’re human too, so they may be willing to help you out in some cases. Be proactive and don’t let things go from bad to worse without doing anything about it. For all your bankruptcy needs, inquiries, concerns, and questions, call the Law Office of Barry Levine at 978-922-8440
How Bankruptcy Can Help in Foreclosure