Are you behind on your mortgage payments, and your home is at the risk of foreclosure? You have probably heard filing for Chapter 7 or Chapter 13 bankruptcy can help avoid foreclosure, and you are willing to take your chances. For Chapter 13 bankruptcy, you may want to understand your payment plan though, which a Chapter 13 calculator can help you estimate the cost.
However, after filing for Chapter 7 bankruptcy, things can move fast. As the court processes your bankruptcy petition, it will place an automatic stay on your account. An automatic stay prohibits your creditors from pursuing you, stopping any foreclosure proceedings against you. While it may sound straightforward, the process can sometimes get complicated. Here is everything you should know about foreclosure in Chapter 7 bankruptcy.
Understanding Foreclosure
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When you are bankrupt, your disposable income is less than the debt you owe. Therefore, you cannot manage to pay your mortgage payment alongside other obligations. When you fall behind on your mortgage payments for several months, your lender may begin the foreclosure process. It refers to a legal process allowing lenders to get the amount owed from a defaulted borrower by seizing and selling the mortgage property. In other words, they can repossess the house and sell it at an auction as stipulated in the mortgage agreement.
But in order to better understand the foreclosure process, it’s important to get familiar with the steps involved. These can include:
- Default: The loan borrower should have defaulted on their mortgage a couple of times before foreclosure begins.
- Notice of Default: If the borrower can’t pay what they owe despite the grace period provided, the lender will issue a Notice of Default.
- Notice of Sale: If the borrower can’t still pay the mortgage within the specified time following the Notice of Default, a Notice of Sale will be issued stating that the lender will sell the property.
- Auction: The lender will sell the property at a public auction to the highest bidder, who pays the bid price in full. The buyer will receive the deed when the sale is already complete.
Indeed, dealing with a foreclosure process can be frustrating, given the idea that the lender will take ownership of your property in case of default. So, if you realize you cannot meet your debt obligations, you should take action soon since there is a high chance your lenders will contract debt collectors to pursue you. The debt collectors work on behalf of the lenders to persuade you to pay the debt. Fortunately, you can use this 11 word phrase to stop debt collectors. Nonetheless, this does not put an end to your problem. If you are facing the risk of foreclosure or are falling far behind in your debt payments, you should consider filing for bankruptcy.
Can Chapter 7 bankruptcy stop a foreclosure, and if it can, how long will it take? Read on to understand how filing Chapter 7 bankruptcy can help and find out if it is the best solution for you.
What is Chapter 7 Bankruptcy
Also known as liquidation bankruptcy, Chapter 7 bankruptcy is a simple and quick type of bankruptcy where a bank trustee liquidates your assets and uses the money to pay off your unsecured creditors. Chapter 7 bankruptcy prioritizes unsecured creditors. Therefore, any secured debts you have still put you at risk of losing the assets you put down as collateral- like your home, car, or other assets.
After successfully filing Chapter 7 bankruptcy and a trustee liquidating your assets to pay off creditors, the court will grant you a debt discharge. This discharge means you are not legally obliged to pay the debts. But, can Chapter 7 help with foreclosure?
Can I Stop Foreclosure By filing for Chapter 7 bankruptcy or By Pursuing Debt Relief?
Yes, you can. After filing your bankruptcy petition, the court will stop all debt collection measures or proceedings taken by your creditors, including foreclosures. However, don’t be fast to file bankruptcy.
Before filing for Chapter 7 bankruptcy, you need to consider the requirements and see if you meet the qualifications. An easy way to tell if you are eligible for Chapter 7 is taking this chapter 7 means test calculator. Input the details, and the results will help you know if you can or cannot file for Chapter 7 bankruptcy.
But aside from taking the test calculator, you may also consider working with a Florida Bankruptcy Attorney or wherever you may be located for legal assistance. They can help you file for bankruptcy or even develop foreclosure defense to stop the process. Given their expertise and skills, they can help ensure that the bankruptcy proceedings will run smoothly and be stress-free.
Moreover, a bankruptcy lawyer can provide valuable legal advice about your situation. For example, If you are eligible, you need to know that it is not a guarantee that filing for Chapter 7 bankruptcy will stop foreclosure. When the court puts an automatic stay, it is a temporary measure that means the bank or your mortgage lender will have to wait on their foreclosing proceeding until the court makes a decision on your bankruptcy.
Despite filing for bankruptcy, mortgage lenders can foreclose your house in two ways. The first is by resuming the foreclosure at the end of your bankruptcy case. The automatic stay is lifted once the court makes a ruling on your bankruptcy case. Thus, the court no longer protects you from foreclosure or other debt collection measures. So, if you still have a record of missed payments or are not making your new payments, the bank can legally pursue you for payment.
Second, if your mortgage lender cannot wait for the few months during which your case is in bankruptcy court, they can decide to file a motion requesting the court to lift the automatic stay. The court can deny this motion if:
- The lender did not comply with procedural requirements
- Foreclosure is illegal
- The house has substantial equity that is non-exempt
- The lender lacks sufficient evidence to show they are legally authorized to seek foreclosure
If the bank files the motion on reasonable ground, the court may decide to lift the automatic stay, putting your home at risk of foreclosure.
There are companies such as National Debt Relief that helps people negotiate and settle debts. That said, some individuals have had negative experiences with National Debt Relief, potentially around National Debt Relief fees. In a foreclosure situation a debt relief company may not be able to do much in this situation. Another question is whether debt relief companies are legitimate.
Additional Factors to Consider
Undoubtedly, filing for bankruptcy can help get you out of debt. However, you should always consider the cost of filing for bankruptcy. The cost varies depending on where you live. So, if you would like to know how much does it cost to file bankruptcy in Idaho or how much does it cost to file bankruptcy in Nevada, you can get the estimates. Ensure you check on the specific costs in your state to accurately predict how much you might need to pay.
Although filing for Chapter 7 bankruptcy offers numerous advantages, filing it to stop foreclosure is not a great idea. While it can delay the foreclosure for some months, buying you time, the lender can still foreclose your house after the proceedings. Moreover, your trustee can sell your home if it has more equity than what is protected by exemptions. So, you might end up losing your home either way. Put these two factors into consideration before filing Chapter 7 bankruptcy.
