Is Bankruptcy A Viable Solution To Foreclosure?

Is Bankruptcy A Viable Solution To Foreclosure?

Often times clients will call our office in desperate need to save their property. People who are in default with their mortgage payments face a very stressful circumstances when trying to figure out what they can do to resolve their situation when they are faced with pre-foreclosure situations. Consumers who are facing foreclosure often do not think of alternate resolution methods when faced with a foreclosure lawsuit. Many times, when we are communicating with clients, we here common stories of how clients believe that when encountering a foreclosure lawsuit their only solution is to either defend the lawsuit or surrender the property. When they receive a summons and complaint, they are faced with dread in how they can possibly save their home. Even though bankruptcy has been around since the founding of our country many people still associate this consumer protection with stigma. Bankruptcy in many situations will provide a better viable solution to save a person’s home or property than defending a foreclosure suit.

One of the key tenets of Bankruptcy law is to provide the debtor with a fresh start. This fresh start doctrine lies at the heart of bankruptcy law and provides many tools to help a consumer or property owner an opportunity to eliminate or reorganize their burdensome debt in the event they are unable to repay it according to the original terms or schedule of the loan.   Sometimes the best thing for a client to do is simply surrender a burdensome mortgage or lien on property that they can no longer afford nor that they want. This is the simplest situation that filing a bankruptcy petition can fix. A consumer can file what is known as a Chapter 7 or Chapter 13 bankruptcy case to surrender the property back to the creditor and any personal liability for a mortgage or lien deficiency will be discharged upon the completion of the bankruptcy case. This is especially beneficial to clients who have properties encumbered by second or third liens that deprive the property of positive equity. This can even be beneficial if the client is facing property tax liens or HOA liens. The surrendering of the property will reclassify all the secured debt as general unsecured debt that is generally dischargeable upon completion of the bankruptcy case.

If a client decides they would like to keep their property a chapter 13 bankruptcy provided multiple resolutions. Generally, there are two options available to debtors attempting to save their house. Many people are not aware that a mortgage modification, aka a loan modification, can be accomplished through the bankruptcy. A normal mortgage modification attempted by a consumer outside of bankruptcy is often fraught with frustration and lack of simplicity when a borrower attempts to negotiate with their creditor directly. Bankruptcy provides an establishes transparent system that can be monitored by the bankruptcy judge for wrongdoing on the part of the creditor. While mortgage modification is a voluntary process the bankruptcy system will make the lender come to the table and review a borrower’s application and documents truthfully and accurately. Furthermore, the mediation that is provided by this system allows for a debtor to come to the table with their creditor to negotiate in front of a neutral third-party mediator. This mediation will cover all of the debtor’s options including the non-retention offers. The additional benefit of doing this process through the bankruptcy forum is that the fees attorney fees associated with this procedure can be spread out over the life of the bankruptcy plan which is from three to five years.

The other option available in a chapter 13 bankruptcy is what is known as a cure and pay plan. In this form, the consumer will pay back over the life of the plan the amount in they are in arrears along with their contractual monthly mortgage payment. This has the added benefit of catching the borrower up on payments can keeping them current for the three to five years they are in their plan. While the mortgage mediation process does not guarantee the creditor will offer a deal the cure and pay plan does. As long as you have the income and make the monthly trustee payment your secured creditor can not deny you. Additionally, Bankruptcy provides clients with automatic stay protection against any attempts to collect on a debt, including foreclosure, while they are working to reorganize and resolve their problems.

The bankruptcy code provides many other tools to and protections that help a consumer resolve their stressful financial problems and make it more viable than foreclosure.  If your situation is more complex than the overview provided here please don’t hesitate to contact our office to set up a free consultation so our experienced bankruptcy team can craft a solution that best provides assistance for your complicated financial situation.

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