Bankruptcy Filing


Many people are aware that filing bankruptcy can stop a foreclosure, but how exactly does it work? It's important to know that if you are facing foreclosure, bankruptcy can stop it, but it's not always a permanent fix, and there are different powers in different types of bankruptcy. Many people will do whatever they can to stay in their home for the indefinite future. If that describes you, and you're behind on your mortgage payments with no feasible way to get current, the only way to keep your home is to file a Chapter 13 bankruptcy.

How Chapter 13 works. Chapter 13 bankruptcy lets you pay off the "arrearage" (late unpaid payments) over the length of a repayment plan you propose--five years in some cases. But you'll need enough income to at least meet your current mortgage payment at the same time you're paying off the arrearage. Assuming you make all the required payments up to the end of the repayment plan, you'll avoid foreclosure and keep your home. Chapter 13 may also help you eliminate the payments on your second or third mortgage. That's because, if your first mortgage is secured by the entire value of your home (which is possible if the home has dropped in value), you may no longer have any equity with which to secure the later mortgages. That allows the Chapter 13 court to "strip off" the second and third mortgages and re categorize them as unsecured debt --which, under Chapter 13, takes last priority and often does not have to be paid back at all

Automatic Stay

Once any type of bankruptcy is filed chapter 7 or 13, an automatic stay provision goes into effect. This provision is a protection granted by the bankruptcy court that bars any type of collection effort by any of your creditors. This includes a foreclosure action as well as car repossession, wage garnishment or even creditor phone calls.

Motion to Lift

Unfortunately, bankruptcy's automatic stay won't stop the clock on the advance notice that most states require before a foreclosure sale can be held (or a motion to lift the stay can be filed). For example, before selling a home in California , a lender has to give the owner at least three months' notice. If you receive a three-month notice of default, and then file for bankruptcy after two months have passed, the three-month period would elapse after you'd been in bankruptcy for only one month. At that time the lender could file a motion to lift the stay and ask the court for permission to schedule the foreclosure sale.

Choosing Chapter 13 Bankruptcy

If you elect to get into a chapter 13 bankruptcy and save your house, you will also be able to get a lot of your other debts discharged, making your mortgage payment a little more manageable

Depending on your income, the plan will last for either three or five years, during which time you must make a monthly payment to the bankruptcy trustee who will then disburse payments amongst your creditors as outlined by your chapter 13 plan. If your financial circumstances change, such as a job loss or divorce, and you cannot make the payment, then you have to promptly notify the trustee to see if the plan can be modified, otherwise your case will be dismissed.

Most people who get into a chapter 13 will wind up getting a large portion of their unsecured debt (credit cards, personal loans, medical debts) discharged upon completion of the payment plan, relieving them of a substantial amount of debt. The best suggestion here would be you decide if bankruptcy is the way to go, if yes, choose a genuine lawyer who can make this process easy for you.