Blog Post
Foreclosure and Bankruptcy
- By Mike Daniels
- •
- 15 May, 2019
Can Bankruptcy Help You Keep Your House?
If you have been reading this website you already know that there are two types of bankruptcy; liquidation and reorganization. The first thing you notice about any type of bankruptcy is peace and quiet; the Bankruptcy Court enters an anti-debt collection injunction called the "Automatic Stay" as soon as you file a bankruptcy. If you haven't paid your mortgage on your house in a long time, the mortgage company can file a lawsuit against you called a Foreclosure lawsuit. The goal of the foreclosure lawsuit is to transfer ownership of your house from you to the mortgage company. Then the mortgage company can sell your house and reduce the loss it suffered when you stopped paying the mortgage.
If your mortgage company has filed a foreclosure lawsuit against you, a bankruptcy will stop that lawsuit in its tracks. In a Chapter 7 liquidation case, that is only a 3-4 month delay. In a Chapter 13 reorganization case, it might just be a permanent solution.
Chapter 13 allows you to catch up on a defaulted mortgage. If you're $12,000 behind in your mortgage payments, you can file a Chapter 13 bankruptcy to stop the mortgage company from foreclosing. Using the Chapter 13 repayment process you can take up to 5 years to catch up the missing $12,000 in payments, so that when you emerge from Chapter 13 your mortgage is all caught up and you're current. There are of course drawbacks, Chapter 13 is expensive in a couple of different ways. First, your lawyer charges you more than for a Chapter 7 case, because he has to do a lot more work. Second, you have to make Chapter 13 plan payments, which the Trustee will use to catch up the missed mortgage payments. Finally you have to make all of the regular monthly mortgage payments; it wouldn't make sense to catch up missed mortgage payments and then fall even further behind during the bankruptcy case!
A Chapter 7 bankruptcy doesn't let you catch up, but it buys you some time and protects you from a deficiency judgment. A deficiency is where the mortgage company sells your home for less than you owe it. Whatever is left over is called the Deficiency, and a mortgage company could try to collect it from you. A Chapter 7 bankruptcy would discharge that deficiency, so the mortgage company would not be allowed to write you, call you, sue you or garnish your salary.
Which type of case makes the most sense for you is a pretty individual decision. The amount of equity in the property, your ability to fund a repayment plan under Chapter 13 and the condition of the home are factors you and your attorney will use to make a decision. Either way, remember there are always options!
If your mortgage company has filed a foreclosure lawsuit against you, a bankruptcy will stop that lawsuit in its tracks. In a Chapter 7 liquidation case, that is only a 3-4 month delay. In a Chapter 13 reorganization case, it might just be a permanent solution.
Chapter 13 allows you to catch up on a defaulted mortgage. If you're $12,000 behind in your mortgage payments, you can file a Chapter 13 bankruptcy to stop the mortgage company from foreclosing. Using the Chapter 13 repayment process you can take up to 5 years to catch up the missing $12,000 in payments, so that when you emerge from Chapter 13 your mortgage is all caught up and you're current. There are of course drawbacks, Chapter 13 is expensive in a couple of different ways. First, your lawyer charges you more than for a Chapter 7 case, because he has to do a lot more work. Second, you have to make Chapter 13 plan payments, which the Trustee will use to catch up the missed mortgage payments. Finally you have to make all of the regular monthly mortgage payments; it wouldn't make sense to catch up missed mortgage payments and then fall even further behind during the bankruptcy case!
A Chapter 7 bankruptcy doesn't let you catch up, but it buys you some time and protects you from a deficiency judgment. A deficiency is where the mortgage company sells your home for less than you owe it. Whatever is left over is called the Deficiency, and a mortgage company could try to collect it from you. A Chapter 7 bankruptcy would discharge that deficiency, so the mortgage company would not be allowed to write you, call you, sue you or garnish your salary.
Which type of case makes the most sense for you is a pretty individual decision. The amount of equity in the property, your ability to fund a repayment plan under Chapter 13 and the condition of the home are factors you and your attorney will use to make a decision. Either way, remember there are always options!