Chapter 13 Bankruptcy And Foreclosure
In Chapter 13 bankruptcy the debtor agrees to pay down part or all of their debt over a set period of time, typically around five years. This process is monitored strictly by a bankruptcy trustee, and at the end of the term all remaining debt is discharged or wiped clean.In Chapter 13, you agree to pay off, in installments, the amount you owe over a set period of time. However, you must continue to make regular mortgage payments as scheduled. It might turn out that you do not have enough income to cover these obligations and will eventually have to give up your home. A good bankruptcy lawyer can make sure you make the right decisions and that all your rights are protected during the process.
What Happens In A Second Mortgage Foreclosure In Pennsylvania
In situations where a homeowner defaults on their primary mortgage and their lender forecloses, all junior lien holders, such as second mortgage holders, must get in line for any leftover proceeds after the primary mortgage is satisfied. If there is enough equity in the home, there could be proceeds available to satisfy a second mortgage.
This concept of primary and junior lien holders still exists in cases when the second mortgage lender decides to foreclosure. If a homeowner is paying their primary mortgage but not paying their monthly payments under the terms of their second mortgage, the lender has the right to foreclosure. However, because the primary lender has the first bite of the pie, a secondary lender will often have to find other avenues to collect the outstanding debt.
If there are not enough proceeds to satisfy the outstanding second loan after a foreclosure, the lender could file a collection lawsuit against the homeowner personally. Once a judgment is obtained, a mortgage lender could levy a debtors bank account or have a lien placed on another property.
To determine your best option if a foreclosure was filed against your home, you should speak with an experienced Bucks County bankruptcy attorney.
The Chapter 13 Hardship Discharge
After confirmation of a plan, circumstances may arise that prevent the debtor from completing the plan. In such situations, the debtor may ask the court to grant a “hardship discharge.” 11 U.S.C. §;1328. Generally, such a discharge is available only if: the debtor’s failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor; creditors have received at least as much as they would have received in a chapter 7 liquidation case; and modification of the plan is not possible. Injury or illness that precludes employment sufficient to fund even a modified plan may serve as the basis for a hardship discharge. The hardship discharge is more limited than the discharge described above and does not apply to any debts that are nondischargeable in a chapter 7 case. 11 U.S.C. §;523.
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Chapter 13 Plan To Save Home
Once you prepare a Chapter 13 plan with your attorney, you will file a Chapter 13 petition for relief and the foreclosure proceeding will stop. The bankruptcy trustee will then recommend your Chapter 13 plan for confirmation and the bankruptcy court will approve a repayment plan that allows you to get current on your mortgage over a three to five year period. Chapter 13 plan payments are fixed so that you can meet all your living expenses first and then pay any surplus income to creditors. You must make all current mortgage payments that come due after the Chapter 13 bankruptcy petition is filed.
Homeowners must make all mortgage payments that come due during the Chapter 13 plan. If you fail to make your post-filing mortgage payments the mortgage company can ask the bankruptcy court to lift the protection of the automatic stay and the mortgage company can resume the foreclosure proceeding if the judge agrees with the mortgage company. The possibility of refinancing your mortgage after you have gotten back on track with your Chapter 13 plan is a real possibility for many consumers
The Chapter 13 Plan And Confirmation Hearing
Unless the court grants an extension, the debtor must file a repayment plan with the petition or within 14 days after the petition is filed. Fed. R. Bankr. P. 3015. A plan must be submitted for court approval and must provide for payments of fixed amounts to the trustee on a regular basis, typically biweekly or monthly. The trustee then distributes the funds to creditors according to the terms of the plan, which may offer creditors less than full payment on their claims.
There are three types of claims: priority, secured, and unsecured. Priority claims are those granted special status by the bankruptcy law, such as most taxes and the costs of bankruptcy proceeding. Secured claims are those for which the creditor has the right take back certain property if the debtor does not pay the underlying debt. In contrast to secured claims, unsecured claims are generally those for which the creditor has no special rights to collect against particular property owned by the debtor.
The plan must pay priority claims in full unless a particular priority creditor agrees to different treatment of the claim or, in the case of a domestic support obligation, unless the debtor contributes all “disposable income” – discussed below – to a five-year plan.11 U.S.C. §;1322.
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Bankruptcy Is A Powerful Tool For Debtors But Some Kinds Of Debts Can’t Be Wiped Out In Bankruptcy
By Cara O’Neill, Attorney
If you’re facing severe debt problems, filing for bankruptcy can be a powerful remedy. It stops most collection actions, including telephone calls, wage garnishments, and lawsuits . It also eliminates many types of debt, including credit card balances, medical bills, personal loans, and more.
But it doesn’t stop all creditors, and it doesn’t wipe out all obligations. For instance, you’ll still have to pay your student loans and arrearages for child support, alimony, and most tax debts. Read on to learn more about:
- what you can expect in both Chapter 7 and Chapter 13
- the benefits offered by Chapter 13 alone, and
- things that can’t be accomplished by filing for bankruptcy.
If you’d like step-by-step guidance through the bankruptcy process, read What You Need to Know to File for Bankruptcy in 2021.
Does Bankruptcy Stop Foreclosure In Chapter 7 And Chapter 13
- Does Bankruptcy Stop Foreclosure in Chapter 7 and Chapter 13?
Yes, a bankruptcy can stop a foreclosure, but how it works can get a little complicated. The purpose of this article is to provide you all of the information and answer all of your questions in regards to bankruptcy and foreclosure. We will cover both Chapter 7 and Chapter 13 foreclosure scenarios.
Heres the guide we will be using:
- What is a Foreclosure?
- Chapter 7 Bankruptcy and Foreclosure
- Chapter 13 Bankruptcy and Foreclosure
- Paying Mortgage Arrearage in a Bankruptcy Plan
- Chapter 13 and Homestead Exemptions
Many families face losing their homes each day because they are behind on their mortgage payments. A small financial crisis can cause you to miss a few mortgage payments. Once you are two or three payments behind on your mortgage, it may be impossible to catch up. Many mortgage companies demand full payment of the past due balance or they will foreclose on the mortgage. Lets discuss bankruptcy and foreclosure in more detail and ways to stop foreclosure. Through this, you can determine if bankruptcy is the right choice for you. We also have an article on foreclosure alternatives to avoid bankruptcy.
Can A House Be Foreclosed On While Under Bankruptcy
Generally, if you miss three consecutive mortgage payments, your lender will declare your loan in default and begin foreclose proceedings. Eventually, your lender will sell it at an auction sale that terminates your ownership. Fortunately, filing for bankruptcy protection at least temporarily halts your foreclosure at almost any point right up until your home sells at auction. How long your bankruptcy can halt a foreclosure, though, depends on the type of bankruptcy you file.
Repayment Plan: Getting Current On The Loan
A repayment plan allows the borrower to bring a loan current by paying the past due amount over a particular period. You and the lender will agree on a payment schedule without changing the terms of the loan.
In a deed in lieu of foreclosure transaction, the borrower voluntarily agrees to convey the title to the property to the lender.
Should I Tell Creditors I Am Filing Bankruptcy
It is highly recommended that you speak with a bankruptcy attorney or someone who has knowledge in this area before making any moves. The attorney can also correspond with the creditor on your behalf. There are instances in which it may make sense to tell the creditor. For example, perhaps you are not sure that you want to move forward with bankruptcy and want to instead amend your payment plan; maybe you are in the process of recovering from some major life event and know that you will be able to pay back the debt, provided that there are some minor adjustments to the original payment plan.
It may make sense in this instance to negotiate with the lender. However, if you are intent on filing for bankruptcy and know that debt repayment would not be feasible with just minor changes, it may make more sense to stay silent to avoid giving away information that would later be used against you. Creditors may also attempt to accelerate the process of repossessing your secured property before the complexities of bankruptcy set in. Again, retaining the help of an expert attorney would help you avoid big mistakes.
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If You Are Only Filing Bankruptcy To Avoid A Deficiency
If the only reason you are filing for bankruptcy is to avoid a mortgage deficiency balance, you could be jumping the gun by filing before your foreclosure sale because you may not be liable for a deficiency anyway.
What is a deficiency? A deficiency is the difference between how much you owe at the time your home is sold at foreclosure, and its fair market value. For example, if you owe $350,000 on your first mortgage and your home sells for $300,000, the deficiency is $50,000. In many states, the mortgage lender can sue you to collect this amount.
Bankruptcy wipes out your personal liability for a mortgage deficiency no matter when you file. But even without bankruptcy, you still might be able to avoid liability for a deficiency. There are a number of situations where borrowers who are foreclosed on do not owe a deficiency:
- State laws. Some states do not allow a mortgage lender to sue former homeowners for a deficiency, at least for certain types of loans.
- Waiver of deficiency. Many lenders will waive a deficiency in certain situations, especially if you apply for a short sale, deed in lieu of foreclosure, or you have an attorney fighting the foreclosure.
- No collection attempts. And many lenders, even if they obtain a deficiency judgment, won’t try to collect it.
What Bankruptcy Can Do
Bankruptcy allows people struggling with debt to wipe out certain obligations and get a fresh start. The two primary bankruptcy types filedChapter 7 and Chapter 13 bankruptcyeach offer different benefits and, in some cases, treat debt and property differently, too. You’ll choose the chapter that’s right for you depending on your income, property, and goals.
Here are some of the things you can expect regardless of whether you file for Chapter 7 or 13.
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What Happens After The Bankruptcy Is Over
If you are able to successfully complete your Chapter 13 repayment plan, whatever balance remains on the debts included in it will be forgiven. That means that anything you owed in back taxes will either have been paid off or discharged. The taxes that came due during your bankruptcy will need to be paid too, or the discharge will be delayed.
However, when all is said and done, a Chapter 13 bankruptcy will leave you with no balance owed on your property taxes, and no reason to foreclose on your home. Your bankruptcy attorney can help you work with the county to confirm that the foreclosure proceeding will be dismissed as soon as the stay is lifted, so you can keep your home.
At John A. Steinberger & Associates, P.C., we know how back property taxes can create big problems for homeowners. We are a full-service bankruptcy law firm in Southeast MI, serving debtors and families in Southfield, throughout Metro Detroit, and in the surrounding communities. We meet with clients facing property tax foreclosures to help them decide how best to protect themselves, and their homes. Call us toll-free at 690-2140 or contact us online to schedule a free initial consultation.
How Chapter 13 Bankruptcy Can Help
Many people want to remain in their home and will do whatever they can to stay in their home for the indefinite future. If that describes you, and you’re behind on your mortgage payments with no feasible way to get current before foreclosure, the only way to keep your home is to file a Chapter 13 bankruptcy.
How Chapter 13 works. Chapter 13 bankruptcy lets you pay off the “arrearage” over the length of a Chapter 13 repayment plan you proposefive years in most cases. But, you’ll need enough income to meet your current mortgage payment in addition to paying off the arrearage. Assuming you make all the required payments up to the end of the repayment plan, you’ll avoid foreclosure and keep your home.
2nd and 3rd mortgage payments. Chapter 13 bankruptcy might also help you eliminate the payments on your second or third mortgage. Here’s how it works. If your first mortgage is secured by the entire value of your home , you might no longer have any equity with which to secure the later mortgages. That allows the Chapter 13 court to “strip off” the second and third mortgages and recategorize them as unsecured debtwhich, under Chapter 13 bankruptcy, takes last priority and often does not have to be paid back at all. As home equity rises, this approach is used less frequently.
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Does Bankruptcy Stop Foreclosure
Bankruptcy and foreclosure are two words borrowers never want to hear. Unfortunately, due to Covid-19, more people are being forced to face the reality of both situations. While federal and state governments have taken steps to help borrowers, these solutions are generally band-aids and not solutions.;
Many people dont know they can use bankruptcy to stop foreclosures from occurring. Naturally, people want to know, how exactly can filing bankruptcy stop a foreclosure? That is where it can get tricky because there are two types of bankruptcy, Chapter 7 and Chapter 13. While there are advantages and disadvantages to each, both immediately stop the collection process and pause a potential foreclosure.;
For some, bankruptcy and foreclosures are imminent and need some real solutions. This is why we detail bankruptcy, along with other alternatives to help deal with a potential foreclosure.;
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Wipe Out Secured Debt
If you can’t afford a payment that you secured with collateralsuch as a mortgage or car loanyou can wipe out the debt in bankruptcy. But you won’t be able to keep the house, car, computer, or other item securing payment of the loan. When you voluntarily agree to secure debt with property, you must pay what you owe or give the property back .
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How Can I Stop A Foreclosure On Business Property
If youre behind in the payments for a mortgage on a commercial property and want to avoid foreclosure, your lender might allow you to enter into an alternative arrangement that meets your needs. For instance, a repayment plan or mortgage modification will allow you to pay arrearages over time. The lender might allow you to sell the property for less than what you owe in a short sale. Finally, a deed in lieu of foreclosure will enable you to give the property back to the lender. You can find out more about each of these options below.