Commonly, foreclosure begins when a homeowner becomes delinquent on mortgage payments, usually after several payments have been missed. The lender begins the legal process of auctioning the home in order to get payment for the loan. The homeowner will be notified of this process. This gives you time to seek alternatives such as loan forbearance, short sale, or a deed in lieu of foreclosure. These are your first alternatives, but if you’ve already attempted and have been unsuccessful, now is the time to consider a bankruptcy to potentially avoid or delay the foreclosure.
In a Chapter 7 or Chapter 13 bankruptcy, the court automatically issues an order (Order for Relief) that includes an “automatic stay” which directs your creditors the stop their collection activities immediately. If your home has been scheduled for foreclosure sale, it will be postponed while the bankruptcy is pending, sometimes for three months or more. But, there are exceptions to the rule.
Exceptions to Automatic Stay
Motion to Lift the Stay: If the lender files a “motion to lift the stay” and obtains the court’s permission to proceed with the sale, you may not get the full three months. But even then the bankruptcy will typically still postpone the sale by at least two months. If the lender is slow in the pursuing the motion, it could postpone the sale by even more time.
Foreclosure Notice Already Filed: An automatic stay unfortunately, doesn’t stop the clock altogether on the advance notice that most states require before a foreclosure sale can be held or a motion to lift the stay can be filed. For example, a lender has to give the owner three months notice. If you receive this three month notice of default but then file for bankruptcy after two months have passed, the three month period would pass after you had already been in bankruptcy for only one month. At that time the lender could file a motion to lift the stay and ask the court for permission to schedule the foreclosure sale.
How can Chapter 13 Bankruptcy Help?
Chapter 13 bankruptcy allows you to pay off the “arrearage” (the late, unpaid payments) over the length of a repayment plan– up to five years in some instances. You will need enough income to meet your current mortgage payment at the same time you’re paying off the arrearage. Assuming you make all the payments up to the end of the arranged plan, you will avoid foreclosure and keep your home.
However, it may be that you will have to give up your home no matter what. In that case, filing Chapter 7 bankruptcy will at least stall the sale and give you two or three more months to work things out with your lender. It will also allow for time to save money during the process and cancel debt secured by your home. While Chapter 7 bankruptcy is pending, you can live in your home for free for some time, or perhaps even longer after your case is closed. It is wise to use that money to help establish new living quarters.
How Can Chapter 7 Help?
Chapter 7 bankruptcy will cancel all the debt that is secure by your home, including your mortgage and second mortgage or home equity loans. Chapter 7 will also make you exempt from tax liability on losses incurred by the lender if you default on these other loans.
However, with all this debt being cancelled the foreclosure of your home can not be cancelled by Chapter 7 bankruptcy. It cancels your personal liabilities under the promissory note, but doesn’t remove a lien.
Is Chapter 7 Right For You?
Chapter 7 could cause you to be forced to lose property you don’t want to give up. For example, if your wedding ring exceeds the value of jewelry you’re allowed to keep, the trustee could order you to give up the ring to be sold to benefit your creditors. In addition, you may or may not be eligible. Under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, you are not eligible if your average gross income for the six month period preceding bankruptcy filing exceeds the state median income for the same size household. Also, if your current income exceeds your living expenses by enough to reasonably fund a Chapter 13 repayment plan, you will not be eligible for Chapter 7.
What if Neither Chapter 7 nor Chapter 13 Works For Me?
If you are facing foreclosure and neither Chapter 7 nor Chapter 13 bankruptcy will work for you, it can at least be the best way for you to get out from your mortgage debt and tax liability. It can offer you a way to save money which will help you find new accommodations and overcome the hurdles that lie ahead.
For more information regarding Bankruptcy and how to avoid foreclosure in Georgia, talk to the Alpharetta Bankruptcy Lawyers at Hait and Eichelzer today.