While filing for bankruptcy won’t necessarily allow you to keep your home, it can help you to put a hold on the foreclosure process. Worst case scenario, it buys you a little bit of time to get your finances in order and plan your next move.
Steadman Law Firm has helped numerous families keep their most valuable asset and climb their way out of debt. If bankruptcy is the answer, we can also offer you advice on how to rebuild your credit.
Contact our Foreclosure Defense Attorney in Charleston today if you are facing foreclosure.
Understanding the Foreclosure Process
Foreclosure is a process that must be followed before a lender can cancel a mortgage and resell a house. The process has a number of steps involved, including notifying the homeowner. Typically, homeowners will need to miss at least three or four payments before the lender initiates a foreclosure. In the meantime, there are steps that the homeowner can take that to at least forestall the process of foreclosure. Bankruptcy is only one option among several.
What Does the Bankruptcy Automatic Stay Do?
As soon as you file for bankruptcy, the creditors who have a claim against you must cease all attempts to collect on debt or take any other actions against you. If a mortgage lender forecloses on your property and you initiate a bankruptcy, they will be legally prohibited from selling the property until the bankruptcy is settled. The mortgage lender will typically ask the court to lift the automatic stay. Sometimes the court grants this request while other times it doesn’t. If the court denies the motion to lift, you will get three to four months. If not, you’ll have maybe a month or two.
Two Options: Chapter 7 and Chapter 13
If you have a lot of credit card debt or unpaid medical bills that are preventing you from staying current on your mortgage, Chapter 7 can help as it will discharge that debt in bankruptcy. This is, of course, assuming you qualify for Chapter 7. With that debt out of the way, if you can remain current on your mortgage payments, Chapter 7 will likely work for you.
Chapter 13, however, is much better suited to handling secured debt like mortgages or car loans. In other words, debt that is backed by some real property. While Chapter 7 discharges debts while liquidating whatever assets you cannot protect, Chapter 13 reorganizes your debt so that you can make payments on it over either a three or five year period. You will need to have enough income to pay off your mortgage plus whatever arrearage you have in debt. There are also limits on how much unsecured debt you can have in Chapter 13 and lastly, it’s more expensive to file.
What If You Have Second or Third Mortgages?
Chapter 13 can help in one significant way. Under Chapter 13, unsecured debt is prioritized the least. In other words, it’s at the bottom of the hierarchy as far as repayment goes. If you have a second or third mortgage on the home, there are instances in which the second and third mortgages are backed, essentially, by nothing. This is especially true when the home has depreciated in value. In other words, whatever equity you had on the home is lost. Chapter 13, will allow you to convert that into unsecured debt making your payments more manageable.
There is, of course, a price to that.
Benefits of Chapter 13 Bankruptcy
If you can meet the obligations of your Chapter 13 repayment plan, filing for a Chapter 13 bankruptcy is an effective way to keep your home. How can it help? Chapter 13 allows you to:
- Repay the arrearage on any missed payments;
- Discharge your unsecured debt without repaying much (or any) of it back;
- Allows you to reduce certain debts to the value of the collateral (cram down);
- Contest and discharge fees added after late payments;
- And strip liens on your home created by second or third mortgages.
Disadvantages of Filing Chapter 13
Chapter 13 bankruptcies aren’t treated as harshly as Chapter 7, but the still stay on your credit report for the next seven years. In the first year, it will be difficult to get any kind of credit at all. But you can rebuild your credit by taking out a secured credit card or a secured loan. These loans allow those who have no credit or bad credit to establish a positive credit score and, over time, you will be able to restore your credit again.
Steadman Law Firm helps those who are hopelessly in debt come up with a way to stem the bleeding. Our attorneys offer several solutions to those who are in debt, including bankruptcy. Contact us today.