Will Filing Bankruptcy Stop Foreclosure
Your lender has started foreclosure. What should you do? What are your options? Will bankruptcy stop foreclosure? How can I bring my mortgage current? These are common questions facing those who find themselves in foreclosure. This article answers these questions and outlines some options.
Bankruptcy Stops Foreclosure
When a bankruptcy petition is filed with the court, 11. U.S.C. § 362 imposes an automatic stay that prevents creditors from beginning or continuing collection activities—including repossessions, garnishments and foreclosure. This automatic stay may be limited or not apply at all if the debtor has filed one or more bankruptcy cases within the past year that has been dismissed, however. Consulting with an experience bankruptcy attorney will help you determine whether the automatic stay will apply in your situation.
Filing bankruptcy may only temporarily stop the foreclosure process, however. While a chapter 7 bankruptcy case is pending the lender can file a motion for relief of the automatic stay. If granted, the lender will then be free to foreclose. After a chapter 7 the lender can foreclose as well.
How Can I Bring My Mortgage Current
If you have fallen behind on your mortgage, your mortgage company likely will not accept payments, unless you pay all the past due amounts or arrearage amounts. This poses a practical challenge for most borrowers. They obviously would not be behind if they have thousands of dollars to bring the account current.
There are two primary options other than foreclosure when this occurs: (1) file for and hope for a loan modification; or (2) file chapter 13 bankruptcy.
Loan Modification to Stop Foreclosure
Federal law may require your lender to engage in foreclosure alternatives prior to foreclosing, including loan modification. Loan modification will alter the terms of your mortgage most often by reducing the interest rate either temporarily or permanently, extending the term of the loan, and in some circumstances reducing the principal amount owed. The challenge with loan modification is that there are no guarantees of success. In our experience, the process will usually last months and sometimes more than a year before a definitive answer is received. During that period you are further and further behind increasing the challenge to keep the property if the modification is unsuccessful.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is specifically designed to deal with mortgage arrears. In a chapter 13 the borrower proposes a repayment plan that complies with the bankruptcy provisions. The first benefit is that the borrower is allowed to begin making regular mortgage payments. This prevents further arrears. The second benefit is the chapter 13 plan can repay the arrears interest free over the plan period. Thus by the end of the chapter 13 plan the borrower is current on the mortgage as well as discharged other debts. Because the code specifically permits this, it is far more reliable than a loan modification.
Chapter 13 bankruptcy and loan modification is NOT mutually exclusive. You can file a chapter 13 and seek a loan modification at the same time.
The experienced lawyers for bankruptcy with Weekes Law can help you determine the best course of action in your circumstances. Contact us today for a free bankruptcy evaluation.