{"id":1078,"date":"2020-11-16T06:00:40","date_gmt":"2020-11-16T11:00:40","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=1078"},"modified":"2024-04-25T23:20:28","modified_gmt":"2024-04-26T03:20:28","slug":"can-filing-for-bankruptcy-save-a-home-from-foreclosure","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/can-filing-for-bankruptcy-save-a-home-from-foreclosure\/","title":{"rendered":"Can Filing for Bankruptcy Save a Home From Foreclosure?"},"content":{"rendered":"\n
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It\u2019s not the easiest topic we cover, but we know foreclosure\nsales will be on the uptrend as the U.S. works for financial recovery from a\nglobal public health crisis. Many readers are currently stretched thin by their\nmortgage obligations combined with other debts. For some, the financial stress\nwill be overwhelming. If any helpful arrangements offered by the government or\nthe lender cannot be sustained, homes can ultimately be taken back by the lending\nbanks. <\/p>\n\n\n\n

Under your mortgage agreement, your home is collateral in\ncase you stop repaying the loan. So, in a default situation, a lender will follow\nthe process agreed upon in the contract, in order to sell the house and use the\nsale proceeds to pay the loan debt and the administrative costs of foreclosure.\nMany people are anticipating that possibility, depending on how feasible it is\nfor them to adjust to our abruptly changed economy.<\/p>\n\n\n\n

For the owner motivated to keep the house, can filing for\nbankruptcy help? It can, if the homeowner has a regular source of income. Let\u2019s\nlook at how this works.<\/p>\n\n\n\n\n\n\n\n

But First, Forbearance.<\/h2>\n\n\n\n

In 2020, the government pressed the pause button on\nforeclosures for homeowners with loans backed by Freddie Mac and Fannie Mae, as\nwell as the FHA and other federal agencies. Homeowners are eligible for\nrelief under the Coronavirus Aid, Relief and Economic Security (CARES) Act, as\nlong as they have asked their lenders to put payments on hold under the federal\nforbearance provisions. There are some non-federal foreclosure moratoriums<\/a> too.<\/p>\n\n\n\n

So, the first thing to do \u2014 whether or not the pandemic is\nthe reason for your inability to cover your monthly mortgage payments \u2014 is to make\na call to your mortgage servicer, and find out if forbearance or a loan\nmodification is possible to obtain from the financial institution that holds\nyour mortgage. <\/p>\n\n\n\n

Forbearance does not forgive debt; it simply buys time. If you can defer payments, also ask if you\u2019re responsible for escrow or interest payments during the hold. And do find out how the debt must be dealt with at the end of the holding pattern. Fortunately, lenders\u00a0will not<\/em> require a lump-sum catch-up payment<\/a> at the end, but you\u2019ll need to know and prepare for the terms they will impose. <\/p>\n\n\n\n

If Forbearance Runs Out or Isn\u2019t an Option, Bankruptcy May Help You. <\/h2>\n\n\n\n

Filing a bankruptcy petition can stop a foreclosure in its\ntracks. Time is of the essence, as most lenders initiate the foreclosure\nprocess once mortgage payments get behind by two to three months (when a forbearance\nperiod is not in effect). Before this happens, the homeowner may consider a short\nsale, or selling the home through a deed in lieu of foreclosure. <\/p>\n\n\n\n

\u261b<\/strong> See more\ninformation from Deeds.com <\/em>about<\/strong> alternatives\nto foreclosures<\/a><\/strong>, such as proceeding with a short sale, or\nselling the home through a deed in lieu of foreclosure.<\/strong> <\/p>\n\n\n\n

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If you are motivated to keep the home and can afford the\noption, you can keep a home though a bankruptcy provision \u2014 specifically,\nChapter 13. While Chapter 11 of the Bankruptcy Code is commonly used by businesses,\nChapter 13 is best for individual homeowners or co-owning couples who have not\nhad any court-dismissed bankruptcy filings in the most recent year. <\/p>\n\n\n\n

Chapter 13 was formulated to help people shield their valuables\nfrom liquidation and get a fresh start. <\/p>\n\n\n\n

How Does Chapter 13 Bankruptcy Play Out?<\/h2>\n\n\n\n

File for Chapter 13 bankruptcy, and the court issues an Order for Relief, triggering the \u201cautomatic stay\u201d\u00a0that prevents foreclosure. Within some limits<\/a>, the stay issued by a bankruptcy court allows the owner to catch up on overdue debts, interest-free. <\/p>\n\n\n\n

To file, you must be drawing a regular income<\/a> (this can be income from self-employment) and your debts must be below the cap set forth in the Bankruptcy Code. The cap is adjusted every three years. You must file a detailed, three-year plan (which can be extended to five years)<\/a> within 15 days of filing the petition, unless there is a reason for a delay and court agrees to extends the deadline for receiving the plan. \u00a0<\/p>\n\n\n\n

In your plan, you will lay out what you can afford. You\u2019ll\npass your disposable income to a trustee. You will not be permitted to borrow money\nin any substantial amounts without the court\u2019s say-so.  <\/p>\n\n\n\n

Throughout the plan and beyond, your mortgage, which is\nsecured debt, continues. But when the plan concludes, all your remaining unsecured\n<\/em>debt will be discharged. Depending on your situation, you might be relieved\nof second or third mortgage liens or deeds of trust<\/a>.\nIn Chapter 13, the court can deem them unsecured debt, which is last in priority\nand might be discharged. This can happen if there is not enough home equity\nleft after the first mortgage to secure others. <\/p>\n\n\n\n

Bottom line: If you have enough income to cover your basic expenses\nand continue to pay your mortgage, and if you follow the trustee\u2019s rules, you\nwill avert foreclosure and keep the house.<\/p>\n\n\n\n

Can the Lender Override Your Plan?<\/h2>\n\n\n\n

In Chapter 13, creditors do not have authority to oversee or\nreject your plan. The lending institution can ask the court to dismiss your filing\nfor several reasons, but your case will likely proceed if:<\/p>\n\n\n\n