The Bottom Line: Saving Your House From Foreclosure
As a homeowner, it is up to you to take all the necessary steps to save your house from foreclosure. The easiest way is to stay away from situations that cause it. Excessive debt, adjustable-rate or exotic mortgages, insufficient emergency resources, lack of insurance, and buying a home you cant really afford will all increase your risk of foreclosure.
It is important to scrupulously research the best interest rates available and pick the mortgage term that is right for you. For example, 40-year mortgages will typically allow you to make lower monthly payments than traditional 30-year fixed mortgages. That said, the interest rates for these mortgages tend to be higher. Use an online mortgage calculator to best estimate your total mortgage costs and plan ahead.
Occasionally, financial setbacks can get in the way of making regular mortgage payments. When this happens, the only wise thing to do is to immediately inform your lender about the situation. In most cases, they will be willing to cooperate with you and help you catch up. Often lenders are not interested in foreclosing on your house except as a last resort, because of the costs and time involved in the process.
When Will Filing Chapter 13 Bankruptcy Stop Foreclosure
A foreclosure is the act of a lender taking back a property after the owner has failed to keep up their mortgage payments. A foreclosure on a house usually follows these steps:
Many people opt to file Chapter 13 bankruptcy specifically to avoid foreclosure. The mortgage foreclosure case will stop upon filing as you enter an automatic stay. An automatic stay temporarily halts all collection efforts, including foreclosure. This is regardless of the stage of your foreclosure.
Filing Chapter 13 bankruptcy can give you the protection and relief you need to get caught up on your debtsand keep your home. A plan will generally allow for you to get caught up on your past due mortgage payments, or arrearage. It will involve paying the arrearage off in addition to keeping up with your monthly mortgage payments. You must continue to make all mortgage payments on time while in Chapter 13. If you fail to do so, the bankruptcy courts can lift the automatic stay. In that case, foreclosure proceedings may resume.
How Can Chapter 13 Bankruptcy Save My House
A Chapter 13 case allows you to bring your mortgage current by spreading out the arrearages over a three- to five-year repayment plan. You’ll also pay your monthly house payment. By the end of the payment plan, your mortgage will be up to date.
But Chapter 13 bankruptcy can do more than just save houses. Past due payments on other secured debts, like car loans, can be handled in much the same way as mortgage arrearages, or you can put the entire car loan into the plan and stretch out the balance over a longer period, if necessary. For old loans, you might be able to reduce what you owe to the value of the vehicle and lower the interest rate, too.
Some additional benefits include:
- Depending on the amount of your family’s income and living expenses, you might pay your nonpriority, unsecured debtssuch as credit card balances, medical bills, and personal loanspennies on the dollar .
- You can pay your bankruptcy attorney’s fees through your plan, as well.
One aspect of this chapter that can cause some filers a problem is this: You must pay any recent income taxes or past due child support and alimony over the course of the plan. If you owe a significant amount and don’t have enough income to support the monthly payment, Chapter 13 bankruptcy might not be the right choice for you. You’ll likely want to meet with a knowledgeable bankruptcy attorney for more information.
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How To Stop Foreclosure In Kansas
There is hope of avoiding foreclosure or even stopping the process before your house makes it to a Sherriffs Sale. Filing bankruptcy can give you the power to save your home if you have fallen behind in making payments on your home mortgage. By filing for bankruptcy you have an automatic stay that goes into effect, this stops or may halt pending Sheriffs Sales and can also stop foreclosure processes. It is important to consult with a foreclosure lawyer in Topeka to find the best options for you.
AChapter 13 bankruptcy can benefit you by:
- Allowing you to make up mortgage arrears through a plan, usually 3 to 5 years
- Removing second mortgages in some circumstances
- Granting you anautomatic stay preventing foreclosure and all collection action
Chapter 13 bankruptcy is essentially a mortgage repayment plan which allows you up to five years to pay backed mortgage payments by means of an established bill-consolidation plan.
The Automatic Stay: A Temporary Stop To Foreclosure
The biggest benefit that a Chapter 7 bankruptcy can provide if you are in foreclosure is a temporary reprieve of foreclosure proceedings through the automatic stay.
Once a bankruptcy is filed, an automatic stay goes into effect. The stay immediately prohibits most creditors from taking any actions to collect from you. This includes phone calls, pursuing litigation, or taking your property through repossession or foreclosure. A bankruptcy court can severely punish any creditor who tries to collect a debt from you after you have filed for bankruptcy.
In foreclosure, the stay also means that foreclosure activities will temporarily cease, and if your home is scheduled for a foreclosure sale, the sale will be cancelled and will not be able to be reset until after the bankruptcy. An uncontested Chapter 7 bankruptcy may take three to four months to complete. Add that to the time it takes for a lender to reschedule a previously cancelled foreclosure sale, and the bankruptcy can provide significant extra time in your home.
You may be able to use the extra time to your advantage, either by living rent-free in the home or working out a foreclosure alternative with your lender, such as a loan modification or short sale.
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Saving Your Home From Foreclosure With Chapter 13 Bankruptcy: The Bottom Line
The bottom line is that the Chapter 13 bankruptcy process should not only not be overlooked when facing home foreclosure, it should very likely be the first option to consider.
Attorney Walter Metzen is a Board Certified Bankruptcy Expert who has assisted thousands of Detroit area clients with Chapter 7 and Chapter 13 bankruptcy for over 28 years.
If you are facing foreclosure, you cannot wait to consult an experienced bankruptcy attorney.
Contact us now to schedule your free consultation.
Who Can File Chapter 13 Bankruptcy
Who is eligible to file Chapter 13 bankruptcy?
Anyone with sufficient income to fund their particular Chapter 13 Plan.
What does that mean?
The cost of every Chapter 13 is specific to the circumstances of the individual filing it. If your Chapter 13 case involves only unsecured creditors with no minimum amount that they must be paid as a pool, you will need to make only a very minimal Plan payment.
However, if your Chapter 13 involves a priority or secured debt that is significant in amount, it will need to be fully repaid within the 60-month maximum length of the Chapter 13 process.
Thus, you will need to have sufficient income to make a monthly Plan payment in an amount that will accomplish that.
If you do not have that level of income, the Chapter 13 process may be unavailable to youbut this is always something to discuss with an experienced bankruptcy attorney.
Aside from that practical consideration, the only other legal eligibility requirement is that you not have too much debt.
The Bankruptcy Code imposes a debt limit upon debtors in the Chapter 13 process. However, the amounts are high enough that this eligibility requirement affects only a small minority of debtors.
Your bankruptcy lawyer will advise you if you approach these limits.
However, you can still file one to impose the Automatic Stay upon your creditors and to cure a mortgage arrearage.
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Chapter 13 Bankruptcy Stop Foreclosure And Keep Your Home
A Chapter 13 bankruptcy will allow you to stop a pending Michigan foreclosure and catch up on your overdue mortgage payments or property taxes. Once a Chapter 13 bankruptcy is filed, an automatic stay goes into place. The automatic stay is a court order that prohibits creditors from taking further action against you and the property you own, including your house. Thus, once a Chapter 13 bankruptcy is filed, the mortgage company can no longer proceed with the foreclosure of your home.
Chapter 13 bankruptcy also provides you with an opportunity to catch up on your past due mortgage payments through a payment plan. Your payment plan consists of your current monthly mortgage payment plus some portion of the arrears . This will be a fixed amount which the mortgage company will be forced to accept under bankruptcy law.
If you have a second mortgage on your home, a Chapter 13 bankruptcy may allow you to strip the second mortgage. This is known as a Lien Strip and requires an Adversary Proceeding to be filed with the bankruptcy court.
Can You Stop Foreclosure With Chapter 7
Can you stop foreclosure with Chapter 7? Yes. In a Chapter 7 Bankruptcy, while the automatic stay is in effect, a court-appointed trustee reviews all debts, income, and assets of the filer. The trustee can take any property you own that isnt protected by an exemption.
As long as you invoke the Texas exemptions, however, your home wont be at risk. Texas provides a homestead exemption that is unlimited for a residence that does not exceed ten acres in a town, city or village or one-hundred acres in the country . See Texas Property Code §§41.001-41.002.
If you are considering bankruptcy to avoid foreclosure, bankruptcy will wipe out your personal liability to repay the debt. However, the lender still has the right to take back the house. If you want to keep your house, you will have to come up with the money you owe and get current going forward.
Chapter 7 can help postpone foreclosure for at least a few months. There is a strategy to consider here, in terms of prioritizing what you want to hold onto when you build back better after bankruptcy, and an attorney experienced in these areas can help you make a solid plan. For example, because bankruptcy will likely discharge many of your debts, including most of your unsecured debts, bankruptcy may help you free up more money to pay your mortgage. In that case, you may be able to negotiate with the lender, get back on track with a payment plan, and stay in your house.
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How Chapter 13 Can Help Save Your Home
For the most part, families/individuals choose to fileChapter 7 or Chapter 13 bankruptcy. When your home is being foreclosed upon by the bank, Chapter 13 may be the best option, simply because this type of bankruptcy makes it possible for you to catch up on payments that are in arrears. Chapter 7 bankruptcy results in an automatic stay, which means the foreclosure may be stalled as long as your Kansas or Missouri home has not been sold at sheriff sale or auction. However, the mortgage company may proceed with the foreclosure by requesting that the Judge in your case lift the automatic stay. Ultimately, this type of bankruptcy is the right option only if you are capable of catching up on the arrears during the course of your bankruptcy case.
Chapter 13, however, makes it possible for you to catch up on your mortgage via the repayment plan, which generally lasts over a period of three to five years, depending on your median income level. The arrears paid on your mortgage is determined by the amount of income you have available to you after essential or “necessary” expenses are deducted from your gross income. The amount you pay in arrears depends on the amount determined after dividing the number of months in your total repayment period. Before you decide Chapter 13 bankruptcy is the right option for your family, you will need to make certain that the amount of the monthly mortgage payments that will continue for three to five years is an amount you can actually afford.
The Process Of Foreclosure Takes Time
When a lender begins the process of filing a complaint to take possession of your home, a long and complex litigation procedure follows.
During this time, a homeowner can consider their options for battling the foreclosure. This consists of renegotiating the original loan. Or, selling the home for equity to be used to pay off the debt, or filing for bankruptcy.
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Chapter 7 Bankruptcy Walk Away From Your Home
A Chapter 7 bankruptcy may allow you to walk away from your home without the worry of financial repercussions. When you purchase a home, you sign a mortgage and a note. The note is a promise to pay a sum of money to the mortgage company. The mortgage gives the mortgage company the right to take the property if the note is not paid on time. A Chapter 7 bankruptcy in Michigan will eliminate your liability as to the note. Therefore, you will not be legally liable for a mortgage deficiency, if there is one.
What Happens After The Foreclosure Sale Is Stopped
Then you have to propose a plan to deal with what you owe.
One of the great benefits of Chapter 13 is you can take up to 60 months to catch up on the past due amounts and reinstate your loan.
Thus, if you are behind $20,000 in mortgage payments , you can catch up on that over 60 months with a payment of under $400 per month. And, in a Chapter 13, the mortgage creditor MUST accept that. .
You also must stay current with all ongoing mortgage payments that come due after your case is filed, so you need to have enough extra income beyond your regular required expenses in order for this to work.
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The Problem With Filing Multiple Bankruptcies
People have taken advantage of the automatic stay in the past by using it to prevent the lender from completing a foreclosure over and over again. The legislature tightened bankruptcy laws so that the automatic stay isn’t quite as automatic for borrowers who’ve had more than one case pending in a year’s time. Here’s how the current system works:
- If you file a new bankruptcy case less than a year after a prior case, the automatic stay remains in place only 30 days unless the court agrees to extend it.
- If you file a new bankruptcy case when you’ve had two prior cases pending during the previous year, the automatic stay doesn’t go into effect unless the court agrees to impose it.
Downsides To Keeping Your House When Filing For Bankruptcy
You may desperately want to keep your house, even if youre so deep in debt youre considering filing bankruptcy. Thats understandable it not only has an emotional attachment, but could some day be an asset, even if youre behind on payments now.
That said, there are some financial downsides to hanging on to your house through a bankruptcy proceeding.
If you file for Chapter 13 bankruptcy, you have to continue making your monthly mortgage payments, as well as pay what you were behind on. This can be difficult, even if the payment plan that you, the court and your lenders agree to, seems to be doable.
Almost two-thirds of Chapter 13 bankruptcies fail. Its tough to keep to a payment plan over three to five years, even though modifications are allowed. Those involve going back to court and explaining why you need one. Through it all, you have to keep current on your mortgage payments, as well as all the other payments agreed to in the plan.
If you file for Chapter 7 and keep your house, you must make the monthly payments. The only hope for a modification, is the bank itself.
Bankruptcy, obviously, is complicated, and if youre worried about keeping your house, its even more so. If youre asking, Should I file for bankruptcy? your first move should be to talk to a credit counselor.
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If You Have Multiple Mortgage Loans
Under Chapter 13, a borrower who has multiple mortgage loan on the same house can get all but the primary categorized as unsecured debt. That means they go into the category thats covered by your ability to pay, and likely wont have to be paid back in full. This only comes into play if you owe more on the house than its worth.
How Bankruptcy Will Affect Your Credit
Although bankruptcy and foreclosure are both damaging to your credit, sometimes filing bankruptcy can be a wise choice when trying to rebuild credit.
A foreclosure not only damages your credit score for years, but you are still left with the mortgage debt. Most mortgage creditors will not consider you for future mortgages if you have a foreclosure on your credit history.
In contrast, bankruptcy lets you start fresh. It still damages your credit, but because you are debt-free, you begin rebuilding good credit sooner.
Although bankruptcy has a few negative consequences, and may not save you from losing your home, it can be the best option in starting fresh with no debt, getting back on your feet, and saving money.
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