Foreclosure is a serious issue for many people.
It can be hard to believe that there is anything you can do about it. But if you’ve fallen behind on your mortgage payments and have no other way out, then bankruptcy to stop foreclosure might be the answer.
This solution isn’t for everyone, but if it’s the best option for you at this time, then it’s worth exploring. In this article, we’ll explore how bankruptcy works as a foreclosure prevention strategy and what type of person should consider it.
First, it’s important to understand what happens when someone loses their home to foreclosure.
Foreclosure is a legal proceeding that takes place at the county courthouse. In some cases, lenders may even initiate them without filing them in court.
Once a person has been served with foreclosure papers, they only have 20 days to respond – this time limit applies whether or not it’s ever filed in court.
This is why it’s key to act quickly if you’re worried about losing your home to foreclosure.
Of course, it can also be helpful to understand how bankruptcy works as a foreclosure prevention strategy. To do that, we must first review the difference between Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 bankruptcy is known as “straight bankruptcy” or liquidation bankruptcy because it involves selling off your property to pay back debt.
With Chapter 13, you file with the court and develop a repayment plan that is typically three to five years long. During this time period, you make monthly payments on your debt based on what you can afford to pay.
If you fail to make these monthly payments, then the court can dismiss your case and potentially force you to hand over any property that has been sold as part of the bankruptcy proceedings.
You might wonder how this could prevent foreclosure if you’re still required to make the monthly payments on your home loan. Here’s an example.
Imagine that you have fallen behind on your mortgage payments and are worried about losing your home to foreclosure.
If you file for Chapter 13 bankruptcy to stop foreclosure, then the court will place a stay on any foreclosure proceedings your lender initiates against you. This means that the court is requiring the lender to wait until after your case has been finalized before they can continue with foreclosure proceedings.
There are other benefits as well.
For example, you might be able to get your mortgage payments reduced based on what you can afford to pay – this is often referred to as a “reduction in arrears.”
But if you think Chapter 13 bankruptcy will work for the specific purpose of avoiding foreclosure, then there are other considerations to keep in mind.
One of the biggest drawbacks is that you must be able to afford to make your monthly Chapter 13 payments.
If you aren’t — or if your overall income would put the payment out of reach for you – then this solution probably isn’t right for you.
It’s also important to note that bankruptcy proceedings can take at least six months when they’re filed in court, so this solution won’t help you avoid foreclosure when the threat is imminent.
A Chapter 13 bankruptcy filing will place a stay on any foreclosure proceedings your lender initiates, and you might even be able to get your payments reduced.
In most cases, this solution isn’t right for everyone since it requires that you make monthly payments based on what you can afford to pay. But if the court determines that bankruptcy is the best option available to you at this time, then you can consider it as a foreclosure prevention strategy.
It’s important to hire an experienced bankruptcy attorney when you’re considering filing for bankruptcy to stop foreclosure.
This is because there are many different types of bankruptcy that can be filed, and only an experienced lawyer will know which one would work best for your specific situation.
It might seem like it makes sense to do this yourself, but the reality is that most people don’t have the time or patience to understand all of the details involved in each type of bankruptcy. That means they make mistakes by not choosing the right type, or by not filling out paperwork correctly – both things could lead to delays in getting your case approved and ultimately hurt your chances of getting any debt relief at all.
This is not a journey to take lightly, but it is also not one to take alone. If you or your business need to file for bankruptcy, reach out to us today to start your journey with us.
If you want to learn more about the options you have, call The Jax Law Center for a free consultation.
Parker and DuFresne