Can Bankruptcy Save My Home from Foreclosure?

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Bankruptcy can deal with foreclosure in several ways.

The Automatic Stay [See Automatic Stay] can provide immediate temporary relief. The Stay stops legal action against your real estate. The Stay takes effect when your Bankruptcy is filed.

You have more options if you file before the sheriff’s sale.  If the sheriff’s sale has already taken place, there are fewer options.  Bankruptcy may still give you a brief respite to complete the sale or redemption of the property.

Chapter 13 normally offers more flexibility with foreclosures. It may be the only way to save your home. The Automatic Stay stops any pending sheriff’s sale. In most cases mortgage arrears are made over time, perhaps over 36 months (or even longer in some cases). Chapter 13 helps in several ways:

  1. It gives the debtor time to make up back payments;
  2. Interest on the arrears stops;
  3. Late payment penalties stop;
  4. Payments on other debts may be delayed while mortgage arrears are paid;
  5. Many debts, especially non-priority unsecured debts, will not have to be paid;
  6. Some second mortgages may be removed as charges against the real estate; and
  7. It might even be possible to modify the terms of a first mortgage, that is change the term, payments or interest on the mortgage or, in a few cases, even write down the principal to the fair market value of the property.

In a Chapter 7 , the Automatic Stay will normally remain in force for about 90 days. A creditor may ask the Bankruptcy Court to lift the stay and permit a foreclosure of your property. Such an action would follow a motion, hearing and order. Whether the creditor is able to lift the Stay or the Stay is dissolved in the ordinary course of the case, the mortgage holder will have to start the foreclosure action again. This means the notice will be served by the mortgage company’s attorney at least six weeks after the new foreclosure notice is served. After the sheriff’s sale there is a 180 day period to sell or redeem the property. By discharging some or all of your other debt, the Chapter 7 case can make it easier to come up with money to reinstate the mortgage.

In either a Chapter 7 or Chapter 13 case you may not wish to keep a home because you are not able to make the payments or because you owe more on the mortgage than the property is worth. You can surrender your interest in the real estate and discharge your personal obligation on the mortgage note.

If you opt to discharge your obligation on the mortgage note and surrender your interest in the real estate, you generally are left to possess the premises (live in or rent) until 180 days after the date of the sheriff’s sale. When this period has expired, the creditor may seek possession of the premises by filing an eviction (unlawful detainer) action if you refuse to leave voluntarily.

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