There are a number of foreclosure prevention options which a homeowner facing foreclosure may consider. They include:
- Loan Modification;
- Refinance;
- Forbearance;
- Selling the Property; and
- Bankruptcy.
Of these options, bankruptcy is the only one that forces the lender to stop the foreclosure. Moreover, bankruptcy is the only option which provides a legal mechanism for protecting a homeowner from foreclosure and other collection efforts by his lender and other creditors.
Basic Things to Know
Before you file bankruptcy, you must complete a pre-bankruptcy counseling seminar. These seminars are offered online, over the telephone, and in person and are provided by providers who have been approved by the U.S. Justice Department. The cost of the pre-bankruptcy seminar is $50.00.
Whether you file a Chapter 7 or a Chapter 13 case, you must complete a pre-discharge counseling seminar. These seminars are also available online, over the telephone, and in person and are provided by counselors who have been approved by the U.S. Justice Department. The cost of the pre-discharge counseling seminar is $50.00.
Chapter 7 Bankruptcy and Stopping Foreclosure
Chapter 7 bankruptcy cases are generally viewed as “no asset” cases. Nevertheless, a homeowner can still file a Chapter 7 case. But there are some very important things you must know about Chapter 7 bankruptcy.
- Exemptions – The Bankruptcy Code allows a bankruptcy debtor to set aside certain property as exempt. The exemptions allow debtors to preserve certain property that is deemed necessary for a fresh start. Depending upon the jurisdiction in which the debtor lives, he may claim the federal or state exemptions. If a debtor’s equity in his home exceeds that value of the exemption he may claim on that home, Chapter 7 may not be the best option because the bankruptcy trustee has the authority to seize the home, sell it, payoff the mortgage, and distribute any remaining proceeds to your unsecured creditors.
- Mortgage Arrearages – If you file a Chapter 7 case, you will only be allowed to keep your home if you are able to bring your mortgage payments current. In some jurisdictions, mortgage companies routinely file a motion for relief from stay in Chapter 7 cases and these motions are almost always granted. If your mortgage company obtains relief from the stay, it will not foreclose as long as you bring your payments current and continue to pay on time each month.
For many homeowners who are facing foreclosure, Chapter 7 is not a viable means for stopping the foreclosure because they simply don’t have the money necessary to cure the mortgage arrearage. For these homeowners, Chapter 13 is often a much better option.
Chapter 13 and Stopping Foreclosure
Chapter 13 bankruptcy is often referred to as a “wage earner” bankruptcy and allows a debtor to restructure his debts and pay them over a three to five year period. If you are a homeowner trying to stop a foreclosure, the following are a couple of important points to know about Chapter 13 bankruptcy.
- Mortgage Arrearages – The mortgage arrearage will be paid through the Chapter 13 plan. The mortgage arrearage and any other secured debts will be paid before your unsecured debts.
- Post-Petition Mortgage Payments – If you file a Chapter 13 case, you are required to begin making your regular monthly mortgage payments directly to the mortgage company beginning the first month after you file. In order for your Chapter 13 plan to be confirmed, you will be required to provide the bankruptcy trustee with proof that all payments have been made since you filed bankruptcy.
Getting Legal Help
The bankruptcy laws are very complex and require strict compliance by a debtor. Therefore, its imperative that you hire a qualified bankruptcy attorney to handle your case. This is particularly true if you wish to use bankruptcy to stop foreclosure.
