Stopping A Foreclosure
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What is a Foreclosure
Foreclosure happens when your mortgage lender takes your home because you’ve missed payments. They can do this through “nonjudicial foreclosure” without going to court or through “judicial foreclosure,” which involves a lawsuit in state court.
Bankruptcy can halt foreclosure, except in cases where the debtor has filed too many bankruptcies previously. With Chapter 13 bankruptcy, foreclosure can be paused, allowing up to five years for the debtor to catch up on mortgage payments. To halt foreclosure, the debtor must file for Chapter 13 bankruptcy before the scheduled sale. It’s crucial to consult a bankruptcy lawyer promptly upon receiving a foreclosure notice. The bankruptcy court considers the debtor’s income and living expenses when determining the monthly Chapter 13 plan payment. However, missing a mortgage or plan payment post-filing may lead to the resumption of foreclosure proceedings.
Stopping Home Foreclosure in Bankruptcy
Homeowners confronted by financial challenges threatening their home can get help from the premier Hampton Roads bankruptcy attorneys at The Law Offices of John W. Lee, P.C. Some homeowners want to save their home as they face losing it in a foreclosure action started by their lender. Other homeowners wish to surrender their home, but they are dealing with a mortgage lender’s refusal to commence foreclosure proceedings. While others wish to surrender the house back to the lender and eliminate a deficiency balance.
Each lender has its own procedures governing when it will start foreclosure proceedings. They usually begin foreclosure proceedings once the borrower falls 60 to 90 days behind on their payments. A homeowner should consult with a bankruptcy attorney as soon as they receive the first letter from a lender threatening foreclosure.
How Different Bankruptcy Chapters Halt Foreclosure
Both Chapter 7 and Chapter 13 bankruptcy can halt foreclosure proceedings, offering assistance tailored to your specific needs. However, the benefits of each option vary significantly.
- Chapter 7 provides temporary relief by delaying foreclosure, but it doesn’t offer a long-term solution. If you’re prepared to relinquish your home and need a short postponement of foreclosure, Chapter 7 might be suitable.
- On the other hand, Chapter 13 offers a path to save your home from foreclosure. If retaining ownership of your home is your priority, Chapter 13 is worth considering. Through manageable monthly payments under Chapter 13, homeowners can catch up on missed payments and retain ownership of their homes.
Stopping Foreclosure with a Virginia Chapter 13 Bankruptcy Attorney
Chapter 13 bankruptcy allows debtors to present a plan for the repayment of their debts based, in part, on their income and the amount of debt they owe. The repayment period can be up to five years depending upon such factors as the amount of the debtor’s income.
The filing of a Chapter 13 bankruptcy stops debt collection activities, including foreclosure through the automatic stay. The automatic stay puts a hold on pending court actions, including foreclosure actions. Filing a Chapter 13 Bankruptcy will prevent the lender from moving forward with the sale while the stay is in place. Once a foreclosure sale has taken place filing a bankruptcy will not undo the sale.
Responsibility of Homeowners Filing Chapter 13 to Save Their Home and Stop Foreclosure
The automatic stay is merely a temporary fix. The lender holding a mortgage on a debtor’s home is a secured creditor and may ask the bankruptcy court to remove the stay to allow it to continue the foreclosure. Debtors in Chapter 13 bankruptcies can prevent this from occurring by presenting a repayment plan in which the arrears are paid and the loan brought current during the repayment period. The debtor must also continue to make the regular monthly payments on the mortgage.
A Chapter 13 bankruptcy will be dismissed if a debtor fails to make the Chapter 13 Plan payments to the trustee. In the case of a homeowner whose house is in foreclosure, failing to make the regular post-petition monthly mortgage payments directly to the lender could also result in dismissal of the bankruptcy and the lifting of the automatic stay and continuation of the foreclosure.
Homeowners who want to retain their homes by filing a Chapter 13 bankruptcy will not see a reduction in their monthly mortgage payments as a result of the bankruptcy.
An Option for a Homeowner Who Cannot Afford the Monthly Mortgage Payments
The attorneys at The Law Offices of John W. Lee, P.C., take time with each client who is seeking debt relief to review all options available to them. Some clients may not be able to save their home from foreclosure because they do not have enough income to make the chapter 13 plan payments.
When a homeowner cannot afford a chapter 13 plan payment or their mortgage payment, another option is filing a Chapter 7 bankruptcy. Unlike a Chapter 13 bankruptcy in which debtors can retain their assets, Chapter 7 usually results in the person’s assets being placed under the control of a trustee and sold to repay creditors. In cases involving foreclosure, a homeowner can discharge any deficiency balance that results from the foreclosure sale. A debtor that files chapter 7 bankruptcy prior to the foreclosure taking place will see the foreclosure temporarily stopped. Typically, a debtor can stay in the house they are surrendering in a chapter 7 bankruptcy until the foreclosure takes place. This may buy the debtor three to six months in the house before they need to move.
If the primary reason a homeowner is considering a Chapter 7 bankruptcy is to discharge a possible deficiency balance, a Hampton bankruptcy attorney might recommend waiting until after a foreclosure sale. A foreclosure sale that results in enough money being realized to pay the debt in full might eliminate the need to file bankruptcy. If the debtor has little to no equity in the property it is unlikely that the foreclosure sale will pay the full mortgage balance owed. An added benefit of waiting until after the sale is that the debtor can live in the property without making payments – saving money for moving costs.
Options for Homeowners When Banks Do Not Foreclose
When homeowners default on their mortgage payments, the lenders may incur added costs for property maintenance, real estate taxes and fees related to the foreclosure and sale of the property. If a lender believes that conditions in the real estate market could result in the property selling for less than the costs it incurred in taking the property, the lender might elect to delay foreclosing.
A lender’s refusal to proceed with foreclosure leaves the homeowner responsible for the property, including the cost of maintenance, taxes, insurance and homeowner’s association fees. Lenders cannot be forced to foreclose on a property, so a debtor who remains the deeded owner of a property may consider renting the property for enough to cover the cost of maintenance, taxes and fees.
Renting the property might help a homeowner who has completed a bankruptcy to recover some of the costs associated with maintaining the property. It will not, however, offer a means for the debtor to get on with life and begin to rebuild his credit. The property will remain in the debtor’s name, even after the bankruptcy, until the foreclosure occurs – then, years later, when the bank initiates foreclosure, that to may hit the debtors credit report. As it stands now, there is no way to force a lender to foreclose. On should consult with their attorney prior to renting out a property that a lender has refused to foreclose on.
Consult an Experienced and Knowledgeable Bankruptcy Attorney
Virginia homeowners in the midst of financial difficulties affecting their home should speak to a Hampton Roads bankruptcy attorney at The Law Offices of John W. Lee, P.C., for trusted advice and guidance from attorneys with more than 70 years of combined legal experience. Call them today at (757) 896-0868 to schedule an appointment.
We have four Hampton Roads locations in Virginia Beach, Hampton, Chesapeake and Newport News serving the surrounding cities and counties of Poquoson, Yorktown, Williamsburg, Norfolk, Portsmouth, and Suffolk, as well as York, James City and Gloucester Counties.