Can Bankruptcy Stop Foreclosure

Can bankruptcy stop foreclosure? Yes, bankruptcy can prevent foreclosure. It can buy you some time, at the very least. The duration of time you have fallen behind on your mortgage and the type of bankruptcy you file will determine if you can successfully halt a foreclosure. Let’s start by covering some basics of foreclosure.

Foreclosure Basics

Can bankruptcy stop foreclosure? The foreclosure process is significantly influenced by the type of mortgage in question. Irrespective of the specific regulations imposed by each state, the commencement of foreclosures generally arises from homeowners falling into arrears on their mortgage payments. In the event that the homeowner becomes incapable of fulfilling their financial obligations, mortgage lenders retain the authority to initiate foreclosure proceedings on the mortgage or real estate loan. As part and parcel of the intricate foreclosure endeavor, the lender may opt to either take possession of the house or facilitate its sale to a third-party entity.

It is important to note that the foreclosure process is governed by distinct sets of laws in different states. Certain states mandate the filing of a lawsuit against the homeowner as a prerequisite for any foreclosure proceedings, thereby adopting a “judicial foreclosure” approach. On the other hand, several states offer an alternative avenue known as “nonjudicial foreclosure.” For instance, in the state of Arizona, the mortgage company is merely required to issue a formal notice to the homeowner regarding the impending foreclosure a significant 90 days prior to the scheduled sale, without involving state courts in the process.

Right of Redemption

You may have a limited time to redeem your property, depending on the state law. In most cases, redemption requires the homeowner to make a lump-sum payment to cover the mortgage and foreclosure costs. The specifics may vary depending on the laws of your state.

Deficiency Balance

It can be disheartening when the bank pursues a deficiency judgment. Consider this scenario: despite your best efforts, the property fails to fetch a price exceeding the outstanding mortgage amount. For instance, if the foreclosure sale concludes with a mortgage balance of $250,000, yet the highest bid falls short at $200,000, a sense of disappointment and concern may ensue. Consequently, the bank may proceed to initiate legal action, seeking to recover the $50,000 shortfall. Such circumstances can undoubtedly evoke feelings of stress and apprehension.

It is essential to be aware that if the bank successfully obtains a judgment, they possess the ability to commence garnishment proceedings, targeting your wages or assets, in order to fulfill the deficiency. This added layer of financial strain only compounds the situation. Nevertheless, it is worth noting that the availability of protective measures against deficiency judgments varies among states, contributing to a sense of uncertainty.

In an effort to mitigate the risk of a deficiency, some homeowners explore the option of a short sale. This alternative approach involves selling the property for an amount lower than the outstanding mortgage balance. However, it is crucial to bear in mind that the effectiveness of a short sale hinges upon the willingness of the mortgage lender to forgive the remaining debt once the transaction is finalized. Therefore, engaging in a discussion with your lender regarding this potential avenue is advisable when confronted with challenging circumstances.

Home Equity

If you find yourself in a situation where your home has equity, meaning that the mortgage balance is lower than the current value of your property, you can breathe a sigh of relief regarding deficiency concerns. The positive equity acts as a safeguard, as it signifies that you possess a financial cushion in the event of a foreclosure or sale. However, it is crucial to ensure that the exemptions applicable to your circumstances will sufficiently protect the entirety of your equity, ensuring that you can retain the full value of your home.

Automatic Stay in Bankruptcy

The Automatic Stay provision is an essential component of bankruptcy law that serves to prevent creditors from pursuing collection actions once a bankruptcy petition has been filed. This protection extends beyond mere phone calls and wage garnishments; it effectively halts foreclosure proceedings, putting them on hold. Consequently, individuals facing an imminent foreclosure sale can take advantage of the Automatic Stay by filing for bankruptcy, effectively stopping the scheduled sale, even if it is scheduled for the following day.

It is important to note that this is just the initial step in the bankruptcy process. The specific type of bankruptcy that you file will determine the subsequent options available to you.

Chapter 7 Bankruptcy Can Stop a Foreclosure

Chapter 7 bankruptcy offers a swifter path to debt relief, devoid of the requirement for a repayment schedule. Upon filing their petition, an individual seeking bankruptcy will receive an order of discharge within a span of 3 to 4 months. Closure of the case occurs once a bankruptcy trustee has conducted a thorough examination of the petitioner’s assets and ascertained the absence of any nonexempt property.

Chapter 7 bankruptcy does not encompass a repayment plan, thereby lacking the capacity to impede foreclosure. The lending party may choose to submit a Motion to be relieved from the automatic stay, thus enabling them to proceed with the foreclosure, or they may opt to await the discharge of the bankruptcy.

You have the option to engage in negotiations for a loan modification or rectify your mortgage arrears by fulfilling all outstanding payments. Chapter 7 bankruptcy can grant you a temporary respite, but once the stay is lifted, the lender will regain the ability to recommence the foreclosure process.

Certain individuals opt to file for Chapter 7 bankruptcy not to contest foreclosure, but rather to acquire a few additional weeks for relocation purposes. If it is their initial bankruptcy filing, they will be afforded at least three weeks to prepare. With the mortgage debt covered by the bankruptcy, they can now move forward without concern for a deficiency judgment, as it will be discharged.

What You Need to Know About Homeowners Associations

It is crucial to diligently monitor HOA assessments if you are a homeowner associated with a homeowners association. Even after filing for bankruptcy, these assessments may still be incurred and remain due. These post-petition debts are not subject to removal by the bankruptcy court.

Chapter 13 Bankruptcy Can Prevent a Foreclosure

Chapter 13 bankruptcy, the second-most common form of personal bankruptcy, entails a distinctive feature: a structured payment plan spanning 3 to 5 years, as opposed to Chapter 7. This arrangement allows individuals to effectively manage and gradually repay their debts. Additionally, under Chapter 13, it becomes imperative to resume making regular mortgage payments, which must be fulfilled within a 5-year timeframe. Furthermore, Chapter 13 can be employed to potentially lower the interest rate on an existing car loan. Upon successfully completing the process, all unsecured debts, such as medical bills and credit card obligations, will be discharged.

Certain bankruptcy courts offer Mortgage Modification Mediation Programs in conjunction with Chapter 13 cases. These programs aim to streamline mortgage modification procedures. Through an online portal, lenders and borrowers can directly connect, thereby eliminating the need for repetitive document submissions. This efficient process is overseen by the bankruptcy court, ensuring smooth facilitation for all parties involved.

Filing Chapter 13 Bankruptcy to Deal With Real Estate Loans

Chapter 13 bankruptcy surpasses the complexities of a Chapter 7 bankruptcy proceeding. It becomes evident that seeking the counsel of a proficient bankruptcy lawyer becomes imperative, particularly when contemplating the filing of a Chapter 13 bankruptcy to address real estate mortgage modification or arrears. This judicious decision to secure professional assistance shall prove to be a wise investment, particularly in cases involving second mortgages.

Second Mortgage and Chapter 13

It’s important to note that Chapter 13 bankruptcy offers additional options beyond addressing delinquencies on your primary mortgage. In cases where you hold a second or third mortgage and the appraised value of your home is lower than the outstanding balance on the first mortgage, Chapter 13 allows for the possibility of “stripping” these junior mortgages. This process effectively converts them into unsecured debts that can be discharged upon completion of the final payment.

Conclusion: Can Bankruptcy Stop Foreclosure?

Can bankruptcy stop foreclosure? You are not alone in experiencing mortgage delinquency. Many others find themselves in a similar situation, especially as the coronavirus-related forbearance period comes to an end, increasing the risk of foreclosure. Filing for Chapter 7 bankruptcy can provide temporary relief by halting the foreclosure process and granting you additional time to make alternative arrangements. If your goal is to save your home, Chapter 13 bankruptcy may be a viable option.

It’s important to remember that there are various avenues to explore in order to avoid foreclosure, even if selling your house is ultimately the best solution for you and your family. Don’t hesitate to explore different options and strategies to determine the most suitable course of action.

Get in Touch With Experienced Bankruptcy Lawyers Today!

Facing financial distress can be an overwhelming and emotionally taxing experience. At Bruner Wright, we understand the profound impact that bankruptcy can have on individuals and businesses. With a deep sense of empathy, we stand by your side during these challenging times, offering unwavering support and exceptional legal expertise. 

Our team of highly skilled attorneys is committed to guiding you through the complex maze of bankruptcy proceedings, providing the knowledge and resources necessary to regain control of your financial future. Rest assured that with Bruner Wright, you are not alone in this journey. We approach each case with compassion and determination, seeking the most favorable outcome for our clients. Trust in our unwavering dedication and let us help you navigate the turbulent waters of bankruptcy with confidence. 

Contact Bruner Wright today and take the first step towards a brighter, more stable future.

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