November 21, 2017

How Can Bankruptcy Stop My Foreclosure?

Bankruptcy is an extremely useful tool when encountering a foreclosure on real property.  As part of my practice, I do foreclosure defense.  In many cases, bankruptcy is a fall-back option should my clients be unable to obtain a timely mortgage modification.  Sometimes we choose bankruptcy first to stop a foreclosure, rather than alternative options that fall under the spectrum of foreclosure defense.  This article discusses how bankruptcy may stop a foreclosure and when filing a chapter 13 bankruptcy is appropriate when facing a foreclosure action against your home.

The first question I ask when clients are facing a foreclosure, though, is: What is your objective with your home?  Are you trying to save your home, or looking at walking away from your home with the least amount of liability exposure?  If clients are looking at saving their home, we move on to a discussion about the benefits of a chapter 13 bankruptcy.

Chapter 13 bankruptcy allows a client to stop immediately a foreclosure action.  As soon as we file a chapter 13 bankruptcy, we will provide the opposing party (the bank) and the court handling the foreclosure case with notice of the chapter 13 bankruptcy filing.  After stopping the foreclosure action with the bankruptcy filing, we propose a plan in which the arrears on the mortgage can be paid over 3-5 years.  Now, as soon as we file a chapter 13 bankruptcy, current payments on the mortgage will need to be made going forward; otherwise, the bank can move the court for relief from the bankruptcy in order to foreclose on the property.

An Example of How A Chapter 13 Bankruptcy Can Stop a Foreclosure & Save a Home:

Let’s say Ted, a consumer, loses his job and cannot make his mortgage payment for 1 year ($1,100 mortgage payment x 12 months = $13,200).  The bank who holds the mortgage initiates a foreclosure proceeding, and Ted comes to see me.  (Fortunately, Ted has found a new job and can make current mortgage payments going forward.) We are able to file a chapter 13 bankruptcy and immediately stop the foreclosure.  We are also able to place the arrears (the 1 year missed payments on the mortgage, or $13,200) into the bankruptcy to be paid over 3 to 5 years.  Now, Ted must start making his current monthly mortgage payment, and for the next 3 to 5 years, he can pay down on the mortgage arrears (or $13,200) through the bankruptcy.  Ted has successfully saved his home from foreclosure.

A chapter 7 bankruptcy, or liquidation bankruptcy, may disrupt a foreclosure proceeding, but does not have the tools necessary (such as a chapter 13 bankruptcy) to cure the mortgage arrears over time.

If you are facing a foreclosure and would like to learn more about how a chapter 13 bankruptcy filing may stop the foreclosure, please call today to set up your free in-office bankruptcy consultation.

 

How to Deal with a Second Mortgage or HELOC – Try Avoiding it in a Chapter 13 Bankruptcy

With home values precipitously dropping over the past few years, many people find that their houses are underwater – owing more on the house than the house is actually worth.  Add to this the reality that many people are straddled with more than one mortgage with the addition of a second mortgage or a home-equity line of credit (HELOC).   What can the underwater homeowner do in this situation? Well, there may be some relief around the corner in the form of a Chapter 13 bankruptcy.

In a Chapter 13 bankruptcy, a second mortgage or HELOC may be avoided entirely.  In order to do this, the value of the property must be less than the principal balance of the primary mortgage, which renders the second mortgage or HELOC wholly unsecured.  For example, let’s say you have a house that is worth $195,000, and there is a primary mortgage of $210,000 and a HELOC of $55,000.  Based on this scenario, the value of the house ($195,000) is less than the principal balance of the primary mortgage ($210,000) rendering the HELOC ($55,000) wholly unsecured.  Under this fact pattern, the HELOC would be avoidable under a Chapter 13 bankruptcy.  However, if there is even $1 of equity left over for the HELOC, the HELOC would not be avoidable.

Now, how do you determine the value of a property in anticipation of avoiding a second lien in a Chapter 13 bankruptcy?  Start by obtaining a Comparative Market Analysis (CMA); many real estate agents will generate this document for free or for a small fee.  We will use this value for the house in our bankruptcy schedules.

It is important to note that this type of relief is only available in a Chapter 13 bankruptcy, not a Chapter 7 bankruptcy.

If you would like to find out more information regarding how second mortgages and HELOCs may be avoided in Chapter 13 bankruptcy, please feel free to call our office to set up a free consultation.

Pursuant to 11 U.S. Code § 528: "I am a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code."

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