BANKRUPTCY & REAL ESTATE
Bankruptcy And Home Foreclosure
For those facing bankruptcy who are also homeowners, there is an added layer of complexity since often times, they will also fall behind on their mortgage payments which can lead them to foreclosure.nye casinoer Homeowners can fall behind on their home mortgages for several reasons; loss of work, excessive medical expenses, excessive credit card debt, adjustable rate mortgages and more. When homeowners can’t make their mortgage payments the mortgage company can foreclose on the property, which is essentially “repossessing” the property. Much like when you can’t make the required payments on your vehicle loan. The outcome could also have unavoidable financial repercussions, such as being forced out of the home, credit damage, or still owing a balance of the mortgage after it has sold.
When it comes to losing your home to foreclosure the steps you take can make a difference in the outcome. But so many homeowners aren’t sure what to do or how to do it and believe that foreclosure is the only option.
How To Avoid Foreclosure:
Believe it or not, your mortgage company wants to keep you from facing a foreclosure. Even those who have filed bankruptcy can avoid losing their homes if done correctly. Contacting your mortgage company as soon as you are aware of your financial situation is in your best interest. You can avoid foreclosure in the following ways:
- Refinancing your mortgage – You have the right to refinance your mortgage within the time of the foreclosure sale, up to and before the sale.
- Negotiate – Your mortgage company may allow you a forbearance, which is temporary relief from making your mortgage payment. Another option is to agree to a payment plan with your mortgage company. This will allow you to pay additional amounts on your regular monthly payment to pay off what you owe. Or you may be able to do a loan modification to get a lower interest rate which will lower your monthly payment as well.
- Reinstate – You may have a certain amount of time, after you have been given notice of foreclosure by your lender, to legally reinstate the loan. You would need to pay the amount you are behind on, including all fees and therefore, while this is an option, it is usually an impossible option.
- Walk away – It may make sense, financially, to just move on. There are a two ways to walk away from your mortgage responsibility. Choose the method that will cause the least financial and emotional discourse to you.
There are two options when you decide to walk away, one is to sell the property. In these situations, you may either work with a real estate agent to help you list the property on the market, or you may want to try to sell it as a For Sale By Owner (FSBO) in order to help you save some money.
It should be noted that often times, when a house is sold in foreclosure, the price at which the home is sold is often much less than the outstanding amount of the mortgage which means the house would be sold as a short sale. As such, it would be beneficial to work with a trusted professional who understand the process and who can help guide you so that you do not take any missteps.
The other option is to sign a deed in lieu of foreclosure agreement. This option gives you the ability to sign the property over to the mortgage company, thus, allowing you to avoid foreclosure altogether. But, again, you should get a written agreement that the lender will release you from the deficiency that will remain after the sale of the house.
- File for Bankruptcy – While bankruptcy can seem daunting it’s best to start thinking about it for what it is: a legal solution to eradicating or reducing debt. Bankruptcy laws were created to assist average people who have become overwhelmed by their financial debt. Once you come to terms with the fact that it is not a form of punishment, you’ll be able to focus on getting out of debt legally.
Chapter 7 & Chapter 13
All bankruptcy filings are handled in federal courts and mandated by the U.S. Bankruptcy Code which is federal law and therefore there is little to no state law that is involved. There are several different types of bankruptcy, but most consumers and individuals will file for one of two types – Chapter 7, which is liquidation of assets, and Chapter 13, which involves reorganization.
Chapter 7 Bankruptcy:
This is the most common type of bankruptcy filing. It is designed for those having difficulty paying their existing unsecured debts, which include personal loans, credit cards, and medical and dental bills. Once you file for bankruptcy, you are protected against creditors attempts to collect on the debts, including lawsuits. You cannot, however, include secured debts such as car loans or mortgage loans. You will be asked to sign a “reaffirmation of debt”, which is an agreement to continue to pay off those debts. A Chapter 7 bankruptcy also will not eliminate student loans, child support, or taxes due.
Chapter 13 Bankruptcy:
Chapter 13 bankruptcy is a somewhat simple procedure, allowing you immediate protection from creditors and outlining a financial plan to get you financially stable again. It is a consumer bankruptcy option that consolidates all of your debts into a single debt, allowing you to make one monthly payment until you’ve repaid the debt. This option will give you the opportunity to manage your debt based on your income and living expenses. It is often utilized by individuals that are in arrears on secured debts. The U.S. Bankruptcy Code allows a maximum five year period to repay the creditors and is under the supervision of the courts.
Temporary Yet Immediate Protection
When you file either a Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an order (called the order for relief) that includes a wonderful thing known as the “automatic stay.” The automatic stay directs your creditors to cease their collection activities immediately.
If your lender had scheduled your home for a foreclosure sale, and you file for Chapter 7 bankruptcy, the sale will be legally postponed while the bankruptcy is pending—typically three to four months. However, the lender can ask the bankruptcy court for permission to proceed with the sale by filing a motion for relief from stay which would allow them to proceed with the foreclosure even while your bankruptcy case is active.
But, even so, it takes time for the motion to be filed and heard, so the bankruptcy will typically postpone the sale by at least two months, or even more if the lender is slow in pursuing the motion to lift the automatic stay.
Alternatively, if you file a Chapter 13 bankruptcy, since you pay back a percentage of the debts you owe to your unsecured creditors through a payment plan over the course of a few years, the automatic stay will prevent foreclosure for the length of the payment plan.
While the automatic stay is a significant benefit for homeowners, it is crucially important to understand that whether you file Chapter 7 or Chapter 13 bankruptcy, you do not get a free house. If you fall behind on your mortgage payments, the bank will have the right to foreclose on your home once they are successful in gaining relief from the automatic stay. If you can afford payments in a timely fashion, the bank can’t foreclose for the entire payment plan period or any other time in the future.
Can I File Without An Attorney?
When filing for Chapter 7 or Chapter 13 personal bankruptcy, one must make careful preparations and have a full understanding of the legal issues involved. Those wishing to file without an attorney should become well-versed with the United States Bankruptcy Code. Misunderstanding the law or making a simple mistake can affect your rights.
The following is a list of ways your lawyer can help you with your case,
– As to whether or not a bankruptcy petition should be filed
– As to which chapter to file
– As to whether or not you will be able to keep your car, home, or other property
– Of the tax consequences of filing
– As to whether you should continue to pay creditors
– Explain bankruptcy laws and procedures
– Help complete and file necessary forms
– Assist you with your bankruptcy case
It is really important to know what options you have and understanding the potential solutions that may be available to help you prevent foreclosure from taking place. You should also know what could happen if you don’t take the proper action and foreclosure becomes imminent.
Determining what your next steps are and which option is best for you is a difficult decision and one you shouldn’t make alone. Don’t wait until you receive the notice that they are filing for a foreclosure from your lender.
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