Foreclosure Defense

Foreclosure Defense

What is a foreclosure?

A foreclosure is a legal proceeding in which a creditor – typically the mortgage lender – attempts to take control of real property with the intent to sell the property on a defaulted mortgage.  Most times, the lender forecloses on property when a borrower fails to make their mortgage payments.  The lender is basically asking the court for permission to take the property back.

While many foreclosures are initiated by the mortgage lender, if the property has a homeowner’s or community association, the association may foreclose on the property as well. 

How can bankruptcy stop a foreclosure?

When a debtor files for bankruptcy, whether Chapter 7 or Chapter 13, the bankruptcy filing imposes an automatic stay.  The automatic stay is one of the most powerful tools in a bankruptcy.  The automatic stay stops almost all collections activities, including pending foreclosures.

How a Chapter 13 helps with a foreclosure?

If you are looking to save the property, a Chapter 13 bankruptcy will allow you to pay off those missed payments over a three- to five-year period.  In order to complete your Chapter 13 plan, you will need to be able to pay both your arrearage payment and your ongoing mortgage payments at the same time.

If you make all of the payments under both your Chapter 13 repayment plan and your ongoing mortgage payments, you should be able to avoid foreclosure and remain in your home.

How a Chapter 7 helps with a foreclosure?

If you know that you will not able to get caught up within five years or you want to surrender the property, you may consider a chapter 7 bankruptcy.  A Chapter 7 bankruptcy provides a short delay in a pending foreclosure.  The foreclosure proceeding is typically stopped while a chapter 7 bankruptcy is pending – which is usually three to four months.

Receiving a discharge in a Chapter 7 bankruptcy relieves your personal obligation to pay your creditors back.  This does not mean that you get to keep the home without paying the lender for those missed payments.  The lender still retains a right in your property even though your personal liability gets discharged in a Chapter 7 bankruptcy.  What a Chapter 7 discharge will do is relieve you of any foreclosure deficiency judgment.  It will also discharge any homeowner’s association amounts owed up until the day the bankruptcy is filed.

Know that once the Chapter 7 bankruptcy case is over, the lender may continue foreclosing on the property.

Can the lender continue with a foreclosure after a bankruptcy filing?

A lender could ask the bankruptcy court for permission to continue with a foreclosure.  If this happens, the lender may continue with a foreclosure even while your bankruptcy case is pending.  In a Chapter 13, this is typically due to failure to maintain the ongoing mortgage payments that come due after the Chapter 13 case is filed.  If you are trying to remain in your home, it is important that you not only make your payments under your repayment plan but also ensuring that you pay your lender directly for all payments that come due after your bankruptcy case is filed.