Borrowers hate to hear “bankruptcy” and “foreclosure.” Many people don’t know how Bankruptcy can halt foreclosures, and people naturally want to know how Bankruptcy can stop foreclosure and immediately halt the foreclosure and collection processes.
Let’s go over some fundamentals of foreclosure.
Basics of Foreclosure
If you have made numerous late payments, your house may be jeopardized by going into foreclosure. You might be able to keep your home if you declare Bankruptcy. After a homeowner fails to pay, the foreclosure process may start. In a foreclosure, the lender may auction the house to reclaim the debt.
For some people, foreclosure and Bankruptcy are impending problems that require practical answers. If you find yourself in this scenario, declaring Bankruptcy might be able to stop or even stop the foreclosure process.
When will Chapter 13 stop foreclosure?
A foreclosure occurs when a homeowner has fallen behind on their mortgage payments, and the lender takes ownership of the property.
A foreclosure on a home often takes the following actions:
- Within 30 days, you skip a mortgage payment.
- If your late payment is not made within 30 days, you default.
- After 30-45 days, the lender will probably send you a breach or demand letter.
- After your first late payment has been made for around 90 days, the lender files a notice of foreclosure.
- Around two to three months following the first missing payment, you will get a default letter.
Many people choose to file for Chapter 13 bankruptcy. The mortgage foreclosure case is halted once you file since an automatic stay is put in place. Regardless of where your foreclosure is at, this applies.
You can get the protection and assistance you need to catch up on your debts. It helps to keep your home by filing for Chapter 13 bankruptcy. Generally speaking, a plan will enable you to make up any arrears on your mortgage.
In addition to making your regular monthly mortgage payments, it will entail paying the arrearage. While in Chapter 13, you must continue to make all mortgage payments on time. The bankruptcy courts may lift the automatic stay if you don’t do this.
Then, foreclosure processes can start once again.
An automatic stay will start as soon as either a Chapter 7 or Chapter 13 bankruptcy petition is filed, requiring creditors to cease all collection attempts. While the Bankruptcy is proceeding, the automatic stay will legally postpone any foreclosure sale that a lender has scheduled for your house, often for three to four months. Chapter 7 bankruptcy is an exception to this rule:
Lifting the Stay in Motion
The lender may move to lift the stay in Chapter 7 bankruptcy after you file for Bankruptcy and the automatic stay is imposed. If this motion is approved, you won’t need to wait three to four months before your house may be sold. You should still have at least two months before the house is sold if you declare Bankruptcy.
Therefore, Chapter 13 bankruptcy, not Chapter 7 bankruptcy, should be filed if your home is under foreclosure or you are overdue on your mortgage payment and want to keep your home or any other real estate you own.
File for Chapter 13 bankruptcy is best to keep your home. Why?
The most incredible option for saving your house is Chapter 13 bankruptcy if you have fallen behind on your mortgage payments and have no other way to pay what you owe or if your home or property is already in foreclosure. In Chapter 13 bankruptcy, you create a repayment plan to pay back your debts and “cure your arrears.” With this strategy, you can pay off your obligations anywhere within three to five years.
You will be able to continue living in your house as you make payments toward the arrearage. Remember that you will require at least the income necessary to pay your mortgage and arrearages throughout this period.
Suppose the market value of your home or other assets is less than the principal sum due on your first mortgage. Thus filing for Chapter 13 bankruptcy may also result in converting your second and third mortgages into unsecured debt.
If so, the second and third mortgages may be stripped, making them an unsecured debt, the lowest priority obligation that frequently does not require repayment in Chapter 13 bankruptcy.
Benefits and drawbacks of filing Bankruptcy to stop foreclosure
Yes, bankruptcy filings can halt a foreclosure; you will at least get some time. However, you should understand its benefits and drawbacks.
- When a bankruptcy petition is filed, all debt collection stops.
- Until the halt lifts, the court forbids debt collectors from getting in touch with the debtor.
- The borrower can make up missed payments under Chapter 13 bankruptcy.
- As long as the payments are made according to the court-issued payment schedule, they are free from liability.
- The debtor is free from worry about their creditors or loans once the predetermined period has passed.
- A Chapter 7 bankruptcy discharges the debtor of all obligations and gives them the freedom to proceed.
- Unfortunately, Bankruptcy follows the borrower for a very long time.
- Both the credit reports and credit score of the borrower decline.
- A Chapter 7 bankruptcy can be seen on credit records for up to 10 years, but a Chapter 13 bankruptcy only shows up for seven years.
- Getting a loan or credit card is more challenging when your credit report is ruined.
- Your interest rates will be more excellent if you are fortunate enough to be approved for a loan or credit card.
- The ability to get basic requirements like employment or housing might also be affected by Bankruptcy.
- Your house will probably be automatically sold off in Chapter 7 bankruptcy.
- Chapter 7 liquidates all your assets, including your home, to pay off your debts.
- A bank employee will manage the foreclosure sale.
- Chapter 13 bankruptcy is significantly more forgiving, and filers who adhere to the court-ordered payment plan won’t lose their homes.
Options that you can consider instead of filing for Bankruptcy to avoid foreclosure
There are several ways to prevent Bankruptcy.
1. Consolidate your debts
You can merge all loans into one consolidation. Typically, a debtor will take out a personal loan and borrow money against their home. This is advantageous because interest rates on home equity loans are sometimes lower than those of other lenders. It will be simpler for the borrower to understand and get rid of their debt if they can pay off multiple debts with a single personal loan.
2. Go for settlement
You need to get in touch with their creditors if they have any income or assets they’re ready to sell. First, settling debt with your creditors will give you time to get your finances back on track. Second, the creditor can consent to accept less than you are required to pay.
3. Consider credit counseling
Counseling is similar to Chapter 13 bankruptcy in that it entails creating a plan to pay creditors over time. Credit counseling, however, is not recorded on the debtor’s credit report.
4. Consider refinancing
By restructuring your loan, the lender extends the time you have to pay it back. Debtors can often stay current and avoid bankruptcy thanks to the additional time and reduced payments.
Both the bankruptcy and foreclosure processes are complex and challenging to understand. Getting legal representation can simplify the procedure and improve your outcome. The lawyer will be familiar with the judges and opposing counsel in the courts, and they will negotiate a better price because of their connections.
About The Author: Lyle Solomon has extensive legal experience, in-depth knowledge, and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998 and currently works for the Oak View Law Group in California as a Principal Attorney.