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CHAPTER 13 BANKRUPTCY & FORECLOSURE

No one wants to imagine a scenario in which they are losing their home to a foreclosure.  It’s not a pleasant thought at all, the risk of losing your home and having your family displaced.  Foreclosures are financially devastating.  Not only do they ruin your credit, they also wipe out any value you have paid into your home such as a down-payment and monthly mortgage payments.  If you are facing an inevitable foreclosure, filing Chapter 13 bankruptcy can help you avoid foreclosure and maybe even help you keep your home.

HOW CHAPTER 13 BANKRUPTCY WORKS

Chapter 13 bankruptcy is one of the two types available to consumers.  The other type, Chapter 7 bankruptcy or “total liquidation” and almost always results in the loss of a home already in foreclosure or about to be foreclosed.  Chapter 13 is basically a payment plan approved by all of your creditors and administered by the bankruptcy court and a Trustee.  The payment plan allows you to keep certain assets, like your home and automobiles, if you pay any delinquency and stay current on all payments going forward.  As such, a pre-requisite of qualification is the disclosure of extensive financial records that detail all your debts and sources of income.

The moment your lawyer files your bankruptcy petition the “automatic stay” goes into effect.  The automatic stay is a court order immediately stopping all collection efforts, including foreclosure actions.  It is one of the main benefits of filing for bankruptcy.  Waiting until the foreclosure process is complete, it’s then most likely too late to get your home back.

The payment plan can take between 3-5 years and may pay back all your debts or just a portion of certain one’s.  When you have successfully completed your payment plan, the bankruptcy case comes to an end and you will receive your “discharge”.  The discharge is a court order that indicates that you no longer own any remaining debts that came due prior to filing your bankruptcy petition, essentially, giving you a “fresh start”.

BANKRUPTCY BUYS YOU TIME

The automatic stay is so important, in that instead of paying off your creditors to avoid judgements, repossessions and foreclosures, it gives you time to sort out your financial priorities and come up with a viable repayment plan with your attorney.  You will have time to evaluate the several possible ways to avoid foreclosure.

  • Refinance your mortgage.  Bankruptcy may give you the time to qualify for a new loan and get a new mortgage in the lengthy application process.
  • Loan modification.  Even longer of a process than refinancing, bankruptcy may buy you the time to modify your mortgage terms.

SOMETIMES GIVING UP (YOUR HOME) IS THE BEST OPTION

For whatever reason, you may not want to keep your home, but you don’t want to lose it to foreclosure.  Consider pursuing other options:

  • Traditional sale of your home.  Selling your home takes time, bankruptcy gives you the time to prepare your home for sale, list it and sell it in order to recoup some of your investment.
  • Short sale.  A sale for less than what is owed.  Takes time to be approved by mortgage company.  Once again bankruptcy buys you time.
  • Deed in Lieu of Foreclosure.  You sign the property over to the bank.  Usually not as damaging to your credit.  Very similar to a foreclosure

KEEP YOUR HOME

Sometimes, people manage to keep their homes as a result of filing Chapter 13 bankruptcy.  They do so by bringing their delinquent mortgage arrears current utilizing the payment plan and remain current on the subsequent mortgage payments as they come due.  Once again, thanks to the automatic stay this option becomes workable because you no longer have other creditors hounding you.

CONTACT PIKUNIS LAW

Navigating and avoiding the foreclosure process can very complicated.  The first step is an analysis of whether Chapter 13 is the best option or does something else make more sense.  Then you must assess whether you should keep the home or not.  Many debtors try to hold on to their home when they shouldn’t.  It’s no better than just letting it go into foreclosure.

Pikunis Law can help you sort through these issues.  If you live in South Jersey and want a consultation, call Pikunis law at (856) 282-5505

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