Hopefully you have read the first part of this blog that discusses mortgage modifications and short sales. This portion of the blog will examine how filing a Chapter 7, Chapter 11, or Chapter 13 bankruptcy can impact your foreclosure.
It is important to understand that when you file a Chapter 7 bankruptcy, the foreclosure process is halted by the automatic stay, but it is not permanently stopped. Your bankruptcy filing can buy you time to remain in your house and possibly negotiate a deed-in-lieu of foreclosure or some other form of voluntary exit from the house. The bankruptcy court will look to see if you are past due on your property, whether you have equity in the home, and if you are able to claim an exemption for the equity in it. If you are underwater on your home – you owe more than it is worth – and/or if you are behind on your payments, the court will likely grant your mortgage lender relief from the automatic stay and allow the lender to proceed with the foreclosure action. If you plan to leave the house, filing a Chapter 7 can help you avoid the tax consequences of having a mortgage forgiven by discharging any deficiency balance owed to the mortgage lender.
CHAPTER 11 AND CHAPTER 13
A Chapter 11 and a Chapter 13 bankruptcy requires a debtor to make payments to his/her unsecured creditors on a monthly basis. The term of the plan is typically three or five years, and it must be feasible (the debtor can afford it). All of your creditors, including your mortgage lender, are included in the plan. Your plan can provide that you will make your monthly payments due to your mortgage lender and smaller monthly payments to be applied to your past due amounts. As a result, your Chapter 11 or Chapter 13 filing can halt the foreclosure for the term of your plan and allow you to recover financially. It may also provide you the ability to refinance your loan after a period of repayment. When you successfully complete your plan, you can emerge from bankruptcy current on your mortgage loan.
Filing a personal bankruptcy may be the difference between losing your home in a foreclosure action and getting a fresh start financially.
Please keep in mind that every case is different, so if you are struggling to pay your mortgage, considering filing bankruptcy, and would like to schedule a no-cost consultation, please contact our office by completing the form on this website or calling us at (954) 932-5377.