If you’ve fallen behind on mortgage payments, you’re probably wondering how to keep the lender from foreclosing on your home. Naturally, the best way to proceed will depend on the circumstances.
For many families facing foreclosure, declaring bankruptcy is the answer. Since this is not always the case, though, you should seek legal counsel before getting started.
To discuss your situation with confidence during the initial case review, here’s what you should know about bankruptcy and the impact it can have on foreclosure proceedings:
Chapter 7’s Impact on Foreclosure
While chapter 7 is unlikely to save your home, it could at least delay the pending foreclosure. This, in turn, could give you time to pursue some other route in lieu of foreclosure, like arranging a short sale.
As soon as you file for chapter 7, the court will implement an automatic stay. This will essentially halt all actions against you, including creditors’ attempts to collect on past-due debts.
The automatic stay also applies to mortgage lenders; however, they may file a motion to lift the stay if they have already scheduled the foreclosure auction. If the court denies their motion, the sale will likely be postponed for several months while the bankruptcy proceedings are resolved.
While chapter 7 is not the answer if you wish to remain in your home, it may be the best approach if the auction has already been scheduled and the foreclosure is inevitable. In addition to giving your family time to pack up and move, the bankruptcy could eliminate any debts secured by your property, like home equity loans.
Chapter 13’s Impact on Foreclosure
If you’re determined to keep your home and the foreclosure proceedings are still in the earliest stages, chapter 13 may be the answer. Often called “reorganization bankruptcy,” chapter 13 helps debtors regain their financial footing by making their month-to-month obligations more manageable.
Whereas chapter 7 requires petitioners to liquidate nonexempt assets in order to pay back creditors, chapter 13 allows them to implement a three- to five-year repayment plan. As long as you can roll your past-due mortgage payments into this plan—while also keeping up on current payments—you should be able to keep your home.
Although there’s no way around catching up on your mortgage if you want to avoid foreclosure, it may be possible to eliminate other debts that were secured by your house during the chapter 13 proceedings. Through a process called “lien stripping,” petitioners are often able to eliminate subsequent mortgages.
If there is not enough equity in the property to cover these additional loans, they can be recategorized as “unsecured debt.” In chapter 13 proceedings, such debts have the lowest priority, and any balances that remain at the end of the repayment period are discharged.
Discuss Your Case with a Bankruptcy Attorney in Jackson
At Brown Bass & Jeter, PLLC, we understand how debt can weigh heavily on the whole family. If you’re struggling financially, we’ll help you determine whether chapter 7 or chapter 13 could provide a much-needed fresh start. Call 601-487-8448 or fill out our Contact Form to schedule a free consultation with a bankruptcy lawyer in Jackson.