12/16/2013 2:02:00 PM by Toronjo & Prosser Law
With the recent downturn in the economy, and, in particular, the real estate market, many people are faced with the prospect of a foreclosure on their homes. Bankruptcy can help in many ways for these individuals, but the impact bankruptcy will have depends largely on the timing of the bankruptcy filing Filing bankruptcy before the scheduled foreclosure sale provides more options to the homeowner(s).
Filing bankruptcy before foreclosure:
Individuals that have missed mortgage payments often find themselves receiving nasty letters from their lenders. They are the classic “you’re behind, pay soon…or else” demands. If you are unable to meet these demands, lenders forward your loan information to a firm who specializes in foreclosures. The next letter you receive will likely be certified mail, and the contents will likely include a foreclosure sale date for your home. Don’t panic; bankruptcy can help.
Chapter 13 bankruptcy is a court-approved repayment plan that allows you to pay your debt over time. Not only does filing a Chapter 13 bankruptcy before the foreclosure sale date stop the scheduled sale, but it may also afford you an opportunity to save your home. In Chapter 13, you are given the opportunity to catch up or “cure” all the missed payments that the lender demanded in their nasty letters. Not all individuals can afford to do this, but if your income and job situation has improved (which may have been the reason you became delinquent on payments in the first place), or someone is now helping you financially, Chapter 13 bankruptcy can help.
Chapter 7 bankruptcy can also stop the scheduled foreclosure sale, but it does not provide the catch up period that Chapter 13 does. Filing Chapter 7 bankruptcy before the foreclosure typically serves to provide individuals with additional time to find other living arrangements, which could be as much as 60 to 90 days, or even longer. Another benefit to Chapter 7 is that it allows an individual to discharge any deficiency balance (where the foreclosure sale amount is less than the amount you owe on your mortgage) that may result from the sale.
For more information, check out “How Bankruptcy Can Help With Foreclosure,” an article written by Stephen Elias at www.nolo.com.