Although many hardworking people fall behind on their mortgage payments, most lenders aren’t willing to work out deals with homeowners to payoff what they owe. If you are facing foreclosure on your home and feel like you are all out of options, then filing for bankruptcy might be the solution to save your home and help you get on track to take control of your financial future.
Foreclosure & Bankruptcy?
Foreclosure is when the lender takes the property and sells it at auction to obtain payment for the remainder of the loan
Filing for Chapter 7 or Chapter 13 bankruptcy can be a smart strategy to delay a foreclosure and possibly save your home. If you are late on multiple mortgage payments, then your lender can start the foreclosure process. But when you file for bankruptcy, the court will issue an order called the automatic stay. This order requires creditors and mortgage holders to stop trying to collect debts.
The automatic stay protects debtors against the following actions that creditors might use to collect a debt:
- Starting or continuing court proceedings against the debtor
- Moving to foreclose on the debtor’s property
- Creating, perfecting, or enforcing a lien against the debtor’s property
- Attempting to repossess collateral
- Wage garnishment
Using Chapter 13 Bankruptcy to Stop Foreclosure
Under a Chapter 13 bankruptcy, you can pay off late unpaid mortgage payments through a repayment plan that lasts three to five years. However, you must earn enough to meet your current mortgage payment while you also pay off late payments. If you complete all the required payments, you'll avoid foreclosure and can keep your property.
Chapter 13 bankruptcy can also eliminate payments on a second or third mortgage. If your first mortgage is secured by the entire value of your home, you might not have enough equity to secure the later mortgages. The Chapter 13 court can "strip off" the second and third mortgages and recategorize both as unsecured debt. Unsecured debts have last priority and sometimes don’t have to be paid back.
Using Chapter 7 Bankruptcy to Stop Foreclosure
Under a Chapter 7 bankruptcy, you can cancel all the debt secured by your home, including mortgages and home equity loans. Additionally, Chapter 7 forgives homeowners for tax liability for losses the mortgage or home-improvement lender incurs from the default. Although this law originally applied to debt from 2007-2010, it has been extended to apply to debts forgiven between 2007 and 2020.
This tax law does NOT cancel the homeowner's tax liability for the lender's losses at foreclosure if the loan is not a mortgage or if it was not used for home improvements. If the mortgage or home equity loan is secured by a vacation home or rental property, then the homeowner's tax liability can’t be cancelled.
Although you can benefit from the tax liability forgiveness afforded to debtors under Chapter 7, you could still lose your home with this option. Chapter 7 bankruptcy only forgives your debt. When you sign a mortgage, you agree to use your home as collateral if you ever default on your payments. With a Chapter 13 bankruptcy, you are allowed to pause action on a lien while you catch up on your payments. Chapter 7 doesn’t lift the lien and still leaves the property open to foreclosure.
We Are Here to Explain All of Your Options to Stop Foreclosure
Our renowned legal team at the Blake Goodman, PC, Bankruptcy and Debt Settlement Attorneys possesses 80 years of combined experience. Our compassionate and knowledgeable attorneys are ready to listen to your concerns and help you get back on your feet. Please don’t hesitate to reach out to our firm to discuss your unique situation so that we can put our extensive resources to work for you.
To schedule your free case consultation with our team, please call (808) 518-4844 or contact us online today.