Does Filing for Bankruptcy Prevent Foreclosure?
Does Filing for Bankruptcy Prevent Foreclosure? | Chapters 7 and 13
Despite what many people may have heard from another source, a Chapter 13 bankruptcy lawyer in Clearwater, FL can tell you that filing for bankruptcy may not be a permanent remedy for home foreclosure. Bankruptcy does temporarily halt the foreclosure process, but it may not be the solution for all depending on the homeowner’s capacity to pay the mortgage installments. If you are considering filing for bankruptcy to hopefully avoid foreclosure, you may want to speak with a Clearwater, FL Chapter 13 bankruptcy lawyer first, to be sure this is in your best interest.
When may filing for bankruptcy not work?
Known for being a common resource for homeowners who are trying to stop foreclosure, bankruptcy can work but it depends whether the person has applied for either Chapter 13 or Chapter 7, among other factors. Filing for bankruptcy may not be successful for those who are not able to keep up monthly payments, and have a bank lender that is aggressive in pursuing the foreclosure sale.
How does Chapter 7 bankruptcy work in regards to foreclosure?
For the homeowner, Chapter 7 bankruptcy is typically a quicker process when compared to Chapter 13 bankruptcy. The majority of Chapter 7 cases are opened and closed within six months. When a homeowner files for bankruptcy, a court instruction called the automatic stay is enforced, which prevents the bank lender from completing the home foreclosure.
What is the downside to filing Chapter 7 Bankruptcy?
Even after the automatic stay has been implemented, the bank lender can request to the court a motion for relief from stay. If approved, the court has allowed the bank lender to continue on with foreclosure proceedings even though the homeowner’s bankruptcy case is still open.
Would filing for Chapter 13 bankruptcy be the better choice then?
A Chapter 13 bankruptcy lawyer for Clearwater, FL can guide you through Chapter 13 bankruptcy, which is a three to five year long case, in which the homeowner must pay back a portion of the debts owed. A homeowner that files for Chapter 13 bankruptcy and has below median income for a family size in that state, may have to participate in the repayment plan over the course of three years. Those who are above the state income median, may have to do the repayment plan over a longer term of five years. The automatic stay can halt the foreclosure for the duration of the repayment plan, assuming the homeowner is able to maintain the monthly mortgage payments during these few years.
How do I know whether filing for bankruptcy is the best choice for me?
A homeowner who is debating filing for bankruptcy, may want to consult with Chapter 13 bankruptcy lawyer serving Clearwater, FL before making any final decisions. Depending on your financial situation, an attorney may recommend filing for Chapter 7 or Chapter 13 bankruptcy, or neither at all. After receiving a foreclosure notice, a homeowner may rush to file for bankruptcy out of sheer panic. By getting legal advice first, the homeowner can feel more confident in their decision and not make a quick decision simply out of fear. Call The Law Office of Michael A. Ziegler, P.L. today to consult with a Clearwater, FL Chapter 13 bankruptcy lawyer you can trust!
Surrendering Property Through Chapter 7 Bankruptcy
Sometimes the best option for a homeowner facing foreclosure is to surrender a burdensome mortgage or lien on property they can no longer afford. Filing a Chapter 7 bankruptcy petition allows a consumer to surrender the property back to the creditor, and any personal liability for a mortgage or lien deficiency will be discharged upon completion of the bankruptcy case. This is especially beneficial for homeowners with properties encumbered by second or third liens that deprive the property of positive equity. It can also help with property tax liens or HOA liens. Surrendering the property reclassifies all secured debt as general unsecured debt that is generally dischargeable upon completion of the bankruptcy case.
Mortgage Modification Through Chapter 13 Bankruptcy
Many homeowners are not aware that a mortgage modification (also known as a loan modification) can be accomplished through a Chapter 13 bankruptcy. A normal mortgage modification attempted outside of bankruptcy is often fraught with frustration and lack of transparency when a borrower negotiates directly with their creditor. Bankruptcy provides an established, transparent system monitored by the bankruptcy judge for wrongdoing on the part of the creditor. While mortgage modification is a voluntary process, the bankruptcy system compels the lender to come to the table and review a borrower’s application and documents truthfully and accurately. The mediation provided by this system allows a debtor and creditor to negotiate in front of a neutral third-party mediator. An additional benefit is that attorney fees associated with this procedure can be spread out over the life of the bankruptcy plan, which runs from three to five years.
The Cure-and-Pay Plan Option
Another powerful option available in a Chapter 13 bankruptcy is the cure-and-pay plan. Under this arrangement, the consumer pays back the amount they are in arrears over the life of the plan, along with their contractual monthly mortgage payment. This has the added benefit of catching the borrower up on payments and keeping them current for the three to five years they are in their plan. Unlike the mortgage mediation process, which does not guarantee the creditor will offer a deal, the cure-and-pay plan provides certainty: as long as you have the income and make the monthly trustee payment, your secured creditor cannot deny you.
Contact a Foreclosure Defense Attorney
The bankruptcy code provides many tools and protections to help consumers resolve stressful financial problems and offers a more viable path than facing foreclosure alone. If your situation is complex, contact Ziegler Diamond Law to schedule a free consultation so our experienced bankruptcy team can craft a solution tailored to your financial situation.
