Can Bankruptcy Stop a Foreclosure?

Can Bankruptcy Stop a Foreclosure?

The answer is a resounding yes. However, bankruptcy must be catered to your specific needs and will really only be available through a Chapter 13 Bankruptcy Plan. But this is a very powerful tool to help save your home from foreclosure and require the bank to work with you to get you back in control.

A Chapter 13 is your best option to stop a mortgage foreclosure and force the bank to work with you on getting the mortgage caught up. In fact, one of the major uses of Chapter 13 bankruptcies is for this very purpose.

When a bankruptcy is filed, the automatic stay kicks into play and stops the foreclosure proceeding. The bankruptcy only stops the proceedings, so if the home has already sold, bankruptcy will not be your remedy.

Chapter 13 is the remedy to pursue because the Bankruptcy Plan allows scheduling the mortgage arrears and other debts from future income instead of the forced sale of your property. Chapter 13 provides that your needs are met first, and then the rest goes to paying off secured debt (defined below). If there is extra money left over, it will help pay off additional debt (unsecured). All of the mortgage arrears must be paid off during the bankruptcy plan. You are highly recommended to have a qualified Idaho bankruptcy attorney to assist in preparing this Plan.

Secured debt is a loan to you that is attached to property, meaning the company can come collect the item the loan was given to you for. Homes, cars, some furniture, and jewelry are the common items. Unsecured debt is a loan given to you but not for any particular purpose and you did not put up ‘collateral’ to get the loan.

As a side, this Bankruptcy Plan is very strictly held to and failure to make any one payment during the Bankruptcy Plan places the whole thing in jeopardy. The mortgage company, and other secured creditors, can come back to the Bankruptcy Court and ask to start or resume foreclosure proceedings and the Court may very well give permission to do so. Bankruptcy can greatly assist you, but failure to keep within the bankruptcy can return you to your previous predicament.

Chapter 7 is not an option because it serves to liquidate debt. A Chapter 7 will start an automatic stay but will only be temporary. This may be a good option if you know you cannot make the mortgage payments even after the bankruptcy. A Chapter 7 will allow you to receive your equity when it is sold rather than losing the equity in foreclosure, but the home will likely be lost unless you have a large amount of equity in it. This will all depend on the value of the home/property, the amount still owed, and the degree to which the Idaho Homestead Exemption will apply. You will want to visit with a lawyer to determine for certain where you would stand under Idaho law in a Chapter 7 Bankruptcy. But if you are willing to give up your home, Chapter 7 may be the best option because it will give you some wiggle room and make a clean break (without a potential deficiency judgment) from the home.

Bankruptcy is not the perfect fit for everyone, especially if you already have large amounts of equity in your home and you are not over 90 days past due.

A warning must be provided regarding the push to conduct a Short Sale because there are some serious repercussions not often disclosed.

Visit with an attorney to find out the best solution for you and whether bankruptcy is a good fit. Contact us today for a free consultation.