February 23, 2018

Mortgages, Modifications, and Bankruptcy: Some Practical Considerations

Often I will meet homeowners who have fallen behind on their mortgage payments and are facing a potential foreclosure, or who may even be in the middle of a foreclosure.  Often, it is my job to perform triage with the situation; and depending on the situation, there are several options available to the homeowner.  This post will address some of these options, and focus on practical solutions.

Foreclosures in Oregon often are conducted judicially.  This simply means that the foreclosure is an action completed through the court.  If a foreclosure lawsuit is initiated, the homeowner will receive a summons and complaint, and be provided 30 days to answer.  Often, it is when the homeowner receives a copy of the complaint and a summons that he or she will contact my office for a free appointment to discuss options.  These options range from foreclosure defense to bankruptcy to, even in some cases, walking away from the property or placing the property up for sale.  This post will focus on saving the property either through foreclosure defense or filing a Chapter 13 bankruptcy case.

1.  Foreclosure Defense: Foreclosure defense is just that; defending against a foreclosure action. If the homeowner is facing a foreclosure yet is not ready to consider bankruptcy (discussed below), foreclosure defense is a valid option.  Often, this takes the form of filing an answer in the foreclosure lawsuit, which provides additional time for the homeowner to reinstate the mortgage loan (and therefore brings the loan out of foreclosure, usually with a payoff of the arrears), or sell the house to recoup any equity in the house, or short-sell the house, or to seek a modification.  Usually, the latter option is chosen: the homeowner needs additional time to obtain a mortgage modification through HAMP or other modification programs.  At this point, I will have my clients go to NEDCO (Neighborhood Economic Development Corporation) or other housing counseling agency while I deal directly with the court and opposing counsel; NEDCO and other such agencies are a free resource to homeowners seeking help to avoid a foreclosure.  Sometimes, with the aid of NEDCO or other housing agencies, clients may be able to obtain a modification of the mortgage, and, as a result, the foreclosure case will be dismissed (and the house is saved from foreclosure).  But what if the client is unable to obtain a modification, yet wants to still keep the house?  We consider bankruptcy.

2. Bankruptcy as a Practical Tool to Stop a Foreclosure & Save the Home:  If foreclosure defense and mortgage modification do not pan out, we can file a Chapter 13 bankruptcy case (or we may just start by filing a Chapter 13 case and avoid foreclosure defense altogether).  A Chapter 13 bankruptcy will allow a homeowner to place the arrears (or amount of mortgage payments that are behind) in a plan to be paid down over 5 years at zero-percent interest rate.  At the same time the arrears are being paid, the homeowner must also pay current mortgage payments.  For example, a Chapter 13 bankruptcy to stop a foreclosure and pay down arrears may be used by a homeowner who lost a job, could not make payments on the house, but has since become gainfully employed and can now make payments on the mortgage and catch up on the arrears over time.  A Chapter 13 bankruptcy, therefore, is a very useful tool for saving a house from foreclosure.

At my meetings with clients, I discuss options available to saving a home from foreclosure.  This includes a discussion of Chapter 13 bankruptcy as well as foreclosure defense and mortgage modification.

If you are behind on your mortgage and are facing foreclosure, or if you have been served with foreclosure papers, please call for your free bankruptcy and foreclosure defense consultation here in Eugene.




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.


Emergency Bankruptcy

There is a bankruptcy known as an emergency bankruptcy.  This is not a special type of bankruptcy, but takes the form of either a chapter 7 bankruptcy or a chapter 13 bankruptcy.  An emergency bankruptcy deals more with process than substance.  This article discusses what an emergency bankruptcy is and when it is appropriate.

An emergency bankruptcy simply is the filing of an incomplete bankruptcy.  The minimum documents that are required to be filed with the court, which form the basis of an emergency bankruptcy, are:  1.) the Voluntary Petition; 2.) Mailing Matrix; and, 3) Statement of Social Security Number.  By filing the minimum requirement for documents in your bankruptcy, you have just filed an emergency bankruptcy case.  This applies to both a chapter 7 bankruptcy case and a chapter 13 bankruptcy case.  Additionally, for a chapter 7 bankruptcy you can pay the filing fee on installments (the first installment is due within about 30 days) and for a chapter 13 bankruptcy an initial filing fee of $185 must be paid.

Now, why would a person file an emergency bankruptcy? Sometimes, as a bankruptcy attorney, I am not called until the 11th hour by a potential client who needs to file a bankruptcy to stop a garnishment, foreclosure, or other civil law matter.  As soon as we file the emergency bankruptcy, the bankruptcy’s automatic stay is triggered, which stops foreclosures and most collections activities.  I have helped clients before whose home was to be foreclosed within a few short days.  Although we did not have all the documents gathered for a complete bankruptcy, we had enough to file an emergency chapter 13 bankruptcy and stop the foreclosure.  This can also be a common case when someone needs to stop a garnishment, right before his or her wages will be garnished.

Once an emergency bankruptcy is filed, the debtor has 14 days to file all deficiencies, or documents that need to be filed to complete the chapter 7 bankruptcy or the chapter 13 bankruptcy.  Usually, we are able to gather and file all missing documents within the 14 day period.  Occasionally, however, we must file a motion with the court to seek an extension of the 14 days in order to have enough time to file all missing documents.

Ideally, it is better to plan and file a complete chapter 7 bankruptcy or chapter 13 bankruptcy from the beginning.  But sometimes circumstances necessitate the filing of an emergency bankruptcy.

If you are facing foreclosure or are about to be garnished at work, please contact me to set up a free in-office bankruptcy consultation in Eugene.  If we need to file an emergency bankruptcy, I can accommodate your schedule. My turn-around time can be extremely fast.

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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