Filing for bankruptcy can halt any creditor action against you. But can bankruptcy stop foreclosure? While it can stall the process, it can’t stall it forever. There are, however, ways that that bankruptcy can help you protect your home.
If you are facing foreclosure, our Jacksonville bankruptcy attorney can help. Contact the Law Office of Diane Anderson to learn more.
Banks can’t simply kick you to the curb as soon as you miss a payment. Generally, missed payments will have to start piling up before they begin the foreclosure process. But for those who are falling behind on numerous bills at once, the entire situation can be overwhelming. Indeed, you will have some serious choices that you will have to make in the near future. One of those will be considering bankruptcy.
Let’s start with the basics. The bank or lender who supplied you with your mortgage has an automatic lien on the property. That means if you do not continue to make payments, the property automatically falls to them. This is also how a car loan works. As you make payments over the years, you accrue equity on the home. This equity is the part of the home that belongs to you. If you lose the home to foreclosure, the bank can force the sale of the home, but you will be owed the equity (technically).
On the other hand, the bank will now claim you have a deficiency balance in the amount of the unpaid portion of the loan. That could cancel out most or all of your equity. In addition, there are likely going to be late fees, processing fees, and a number of other fees related to missed payments on your home. In other words, it’s better to not lose your home in foreclosure.
So the question becomes: How can you protect it?
As soon as you file for bankruptcy, you get an automatic stay from any creditor action. The creditor can petition the court for relief from the automatic stay, but generally, it will be difficult for them to find grounds. This only forestalls the inevitable. At the most, it will buy you four months. If you’re trying to figure out some way to keep your home, you will need to have a plan of action that goes beyond merely triggering the automatic stay.
Most of those who file for bankruptcy file under Chapter 7. Chapter 7, however, will not help you manage your mortgage. It can help you discharge other kinds of debts such as medical bills and credit card debt that may be impeding your ability to pay your mortgage, but it can’t help you with the mortgage itself. In cases where the bank fully forecloses on your home and you’re now living somewhere else, you can discharge the remainder owed in Chapter 7, but that is the extent that Chapter 7 can help. That’s because Chapter 7 is designed only to manage unsecured debt.
Chapter 13, on the other hand, can manage unsecured debt. In fact, that’s what it’s designed to do.
For those who want to remain in their homes, there is another option. This option will depend on how much you owe in secured debt since Chapter 13 has a limit on how much money you can owe. Chapter 13 allows you to work out a repayment plan that includes the delinquent balance on your mortgage alongside your current payments. If you can make the monthly payments, you will be able to stop foreclosure and keep your home.
Most folks have some idea of there being a homestead exemption in bankruptcy, though they don’t fully understand what that means. The homestead exemption applies to those who have a decent amount of equity. Your equity in your home can be protected up to a certain amount, but if your mortgage lender is threatening foreclosure, you may lose some of that equity in the repayment process.
In other words, you’re borrowing against equity that you already have to pay off the remainder of the mortgage. The upside is that you can also qualify for relief from second or third mortgages on your home. You will need to discuss how homestead exemptions work in your individual case with your bankruptcy attorney.
The Law Office of Diane Anderson can help you protect your home. We understand that sometimes debts can get out of control. If you’re in an accident, have a sudden health issue, or are going through a divorce, chances are, you may struggle to make ends meet, at least for the time being. Our office has helped numerous Californians keep their homes even as the bank was foreclosing on them. If you’re interested in learning more, contact us today.
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