You can usually stop a foreclosure with either a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” Both are armed with the “automatic stay” – the immediate injunction against just about all creditors’ actions that goes into effect the moment your bankruptcy is filed. But what happens after that depends on whether you file a Chapter 7 or Chapter 13 case, and on what you want to accomplish.
BUY A LIMITED AMOUNT OF TIME WITH A CHAPTER 7 CASE
A Chapter 7 filing cancels an immediately pending foreclosure sale, but usually does not buy you much time or give you much leverage for keeping the home in the long run.
It’s still useful in two situations:
- You want to keep your home and expect to be able to catch up on your back payments within about a year.
After filing a Chapter 7 case, you may well see a significant improvement in your monthly cash flow with the discharge of most of your debts. Make a careful calculation of the amount you are behind on your mortgage, and also find this out from your lender. Then determine if you will be able to resume full regular monthly payments (including insurance and taxes, as appropriate), PLUS pay enough extra each month to cure the full arrearage within about a year. If so, your lender may well be willing to enter into a “forbearance agreement” with you, accepting your payments and committing not to foreclose as long as you pay as agreed.
- You’ve decided to surrender the home to your lender, but have a foreclosure sale scheduled soon, so you need a limited amount of time to move – a few extra weeks or a couple months.
Filing Chapter 7 shortly before the foreclosure sale will stop the sale. The “automatic stay” also usually at least temporarily stops your mortgage lender from scheduling a new foreclosure sale. But the “automatic stay” usually expires about three months after your Chapter 7 is filed. Also, the lender can ask the bankruptcy court for permission to restart the foreclosure sooner. If you’re not making payments and don’t intend to keep the house, the court would likely allow the lender to schedule a new foreclosure. But whether the lender will bother to make this request is difficult to predict.
Overall, with the right timing, Chapter 7 can buy you some extra time, whether you want to keep your home or surrender it, but how much it will buy is often hard to predict.
BUY AN EXTENDED AMOUNT OF TIME WITH A CHAPTER 13 CASE
A Chapter 13 imposes the same “automatic stay” to stop an approaching foreclosure sale as Chapter 7 does, but gives you much more time and control over the situation.
It gives you up to five years to catch up on your missed mortgage payments, late fees and any other costs that you are behind on. Chapter 13 can also make it cheaper – on a monthly basis and in the long run – to keep your home. And it gives you some flexibility to deal with future changed circumstances.
Under Chapter 13 you do have to diligently make your regular monthly mortgage payments and not slip behind any further. The bankruptcy judges have limits to their patience. But in some situations, especially if there is an equity cushion in the property protecting the lender, there can more flexibility. For example, sometimes some or all of the missed mortgage payments can be paid out of the proceeds of a future sale of the property during the Chapter 13 plan.
Chapter 13 also can give you extra time to catch up on back property taxes, sometimes “strip” a second mortgage off your title or avoid a judgment lien so that it is no longer on your home’s title either. All these steps combined can leave you with more money to catch up on the first mortgage arrearage and fulfill all the terms of your Chapter 13 plan so that you can successfully complete the case. If done appropriately, when you’re done, you’ll be current on your mortgage and usually free and clear of all other debts.
Maximizing the benefit you get from bankruptcy to protect your home is a delicate task. Please contact us at The Law Offices of Roger Fuller so we can show you how to get the best use out of the “automatic stay” to meet your unique needs. Schedule your free and confidential consultation either by calling 214-516-6187.