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Tips to Avoid Foreclosure During Bankruptcy

Tips for Handling Foreclosure and Bankruptcy

For a person who is struggling financially, foreclosure and bankruptcy often come hand-in-hand. The thought of foreclosure can seem extremely painful and difficult, which is completely understandable since the process affects the place called “home.” However, certain factors and considerations should be kept in mind if a homeowner is facing foreclosure, as well as bankruptcy.

Consider a Short Sale

In some situations, a “short sale” of the home may be the best option for the debtor. Short sales occur when the mortgage lender agrees to allow the homeowner to sell the home for less than the amount owed on the mortgage loan. The short sale process results in the lender still receiving some type of payment and avoiding the legal costs associated with a formal foreclosure.

The main difference between a short sale and foreclosure is that the short sale is a voluntary negotiation between the homeowner and the mortgage lender, whereas foreclosure is an involuntary proceeding filed against the homeowner by the lender. The former is much more preferable to the latter for many different reasons.

For one, a short sale helps the debtor in that he or she is in a better financial position after the sale is completed. The lender will not pursue a legal action for any deficiency left after a short sale. The lender will consider the debt paid in full. In addition, with a short sale, both parties are able to avoid a lengthy and expensive court proceeding. The lender will also likely receive a higher amount with a short sale than it would in a foreclosure.

If the debtor is interested in pursuing a short sale, it is recommended that he or she talk with his or her bankruptcy attorney on how to proceed and initiate this communication with the lender. Not all debtors will qualify for a short sale, so the attorney will need to carefully evaluate the debtor’s situation to see if this option would be best.

Understanding the Automatic Stay

A Chapter 13 bankruptcy may be used to stop a foreclosure sale so that the home can be saved. When an individual files for bankruptcy, the automatic stay goes into effect. This stay goes into effect in both Chapter 7 and Chapter 13 bankruptcy filings. When the stay is issued, any collections actions that are ongoing against the debtor are stopped, including foreclosure proceedings. Creditors are notified of the automatic stay, and the debtor is given an opportunity to repay past due mortgage payments over an extended period of time. If the past due and future mortgage payments are not paid, the mortgage company has the right to file a motion to have the court officially “lift” the automatic stay and allow the mortgage company to move forward with the foreclosure proceedings.

If the court determines it is not likely that the debtor can afford to keep his or her home, the court may grant that the motion and the automatic stay will be lifted to allow the foreclosure to proceed.

Keeping the Debtor’s Home During Chapter 13 Bankruptcy

If it is at all possible for the homeowner to keep his or her home, the option of Chapter 13 bankruptcy may be that person’s best bet. Chapter 13 bankruptcy cases are known as reorganization bankruptcies in which the debtor works with the bankruptcy trustee to develop a repayment plan that allows the individual to pay outstanding debts through a three to five-year plan. In this type of filing, the debtor can roll his or her missed payments into the repayment plan, paying them off throughout the timeline. If the homeowner remains current on his or her payments, they will be able to stay in the home.

Chapter 7 and Foreclosure

The other type of bankruptcy proceeding is Chapter 7 bankruptcy, otherwise known as liquidation bankruptcy. In Chapter 7, the bankruptcy trustee takes any property that is not otherwise protected under a bankruptcy exemption, sells it and pays off qualifying debts.

The problem is, if the individual is considering Chapter 7 bankruptcy, it normally means the debtor may not be able to immediately pay in full the total past due amount owed to the lender, keep up with future payments and stay in the home. The bankruptcy attorney can best advise the debtor if he or she is considering Chapter 7 bankruptcy on what can be done to protect the debtor’s interest in the home.

CONTACT AN ARLINGTON BANKRUPTCY ATTORNEY FOR A FREE CONSULTATION TODAY

An experienced Texas bankruptcy lawyer can help you stop a foreclosure sale and save your home! Please call the Law Office of Marilyn D. Garner NOW at (817) 505-1499 for a free consultation to discuss how bankruptcy may help you save your property.
 

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