Written by Canterbury Law Group

How Bankruptcy Can Help With Foreclosure

How Much Does It Cost To File For Bankruptcy

When confronted with foreclosure, many debtors file for bankruptcy—and with reason. By filing for bankruptcy, a debtor can obtain what is known as an automatic stay. During the bankruptcy case, the stay serves as an injunction, or bar, prohibiting creditors from attempting to collect debts or enforce liens.

In some instances, a debtor is not entitled to the automatic stay, or the lender successfully petitions the court to lift the automatic stay. Whether you file for Chapter 7 or Chapter 13 bankruptcy determines whether the foreclosure process is halted temporarily or permanently.

The Process of Foreclosure

When you purchase a home, you agree that if you fall behind on your monthly payments (default on the loan), the lender has the right to sell the property at auction and apply the proceeds to your loan balance. Prior to the house being auctioned, the lender must follow the foreclosure procedures outlined in federal and state law.

After the federal and state waiting periods for homeowners to catch up on arrearages or apply for a loss mitigation program (such as a mortgage modification) have expired, the lender may proceed with foreclosure in accordance with state foreclosure laws.

A lender may foreclose in one of two ways, depending on state law:

Foreclosure through the courts. All states permit lenders to foreclose through a “judicial” process that begins with the bank filing a court lawsuit. The homeowner has the option of responding to and defending the suit. The case will be litigated, and if the bank prevails, the court will order the home sold at auction.

Foreclosure without judicial intervention. Certain states permit lenders to use a streamlined “nonjudicial” foreclosure procedure that entails following state-mandated steps. The bank is frequently required to allow the homeowner time to bring the account current. Additionally, the lender must notify the owner of the sale date and, in some cases, publish the sale date via newspaper advertisement or public posting. Following completion of the steps, the lender may sell the home at auction without first obtaining court approval.

As long as the foreclosure sale has not occurred, filing for bankruptcy will halt either type of foreclosure process.

Can Bankruptcy Help With Foreclosure?

Yes, bankruptcy can help with foreclosure. In fact, it’s one of the most effective ways to stop a foreclosure and save your home.

When you file for bankruptcy, an automatic stay goes into effect immediately. This stay stops all creditors from taking any collection action against you, including foreclosure proceedings. This means that your lender cannot continue with the foreclosure process until the bankruptcy case is resolved.

There are two main types of bankruptcy that homeowners can file for: Chapter 7 and Chapter 13.

Chapter 7 bankruptcy: Chapter 7 bankruptcy is a liquidation bankruptcy, which means that your non-exempt assets will be sold to repay your creditors. However, your home is exempt from liquidation in most states, so you may be able to keep your home even if you file for Chapter 7 bankruptcy.

Chapter 13 bankruptcy: Chapter 13 bankruptcy is a reorganization bankruptcy, which means that you will create a repayment plan to pay back your creditors over a period of 3-5 years. If you are able to successfully complete your Chapter 13 repayment plan, you will be able to keep your home and eliminate any remaining debt.

Whether Chapter 7 or Chapter 13 bankruptcy is the best option for you will depend on your individual circumstances. It is important to speak with a bankruptcy attorney to discuss your options and get advice on how to best proceed.

Here are some of the benefits of filing for bankruptcy to stop foreclosure:

  • It can stop the foreclosure process immediately.
  • It can give you time to get on your feet financially and catch up on your mortgage payments.
  • It may allow you to keep your home, even if you are behind on your mortgage payments.
  • It can eliminate other debt, such as credit card debt and medical debt, which can make it easier to afford your mortgage payments.

However, it is important to note that bankruptcy is a serious financial decision and should not be taken lightly. Filing for bankruptcy will have a negative impact on your credit score and can make it difficult to obtain new loans in the future.

When the Automatic Stay Is Inapplicable

The stay is automatically triggered upon filing for Chapter 7 or Chapter 13 bankruptcy. There is no additional action required to bring the automatic stay into effect. (For more information, see Bankruptcy’s Automatic Stay.)

There are, however, two exceptions to the automatic stay that prohibit debtors from interfering with a creditor’s right to foreclose by filing and dismissing successive bankruptcy cases. The following are the rules.

Within the last year, one previous bankruptcy case was dismissed. The automatic stay is only in effect for 30 days following your bankruptcy filing.

Two or more previously dismissed bankruptcy cases within the last year. The automatic stay is not invoked at all.

Debtors who qualify for the automatic stay exceptions may petition the bankruptcy court to impose the automatic stay and halt the foreclosure. To prevail, the debtor must establish beyond a reasonable doubt (a relatively high standard) that the previous bankruptcy cases were not filed in bad faith.

The automatic stay exceptions for repeat or serial filers do not apply if you initially filed for bankruptcy under Chapter 7 but then converted to Chapter 13 after the means test determined that your income was too high to qualify for Chapter 7.

How the Automatic Stay Can Aid in Foreclosure Prevention

The automatic stay extends the time period available to attempt to resolve a pending foreclosure. The options for dealing with an impending foreclosure are largely dependent on whether you file for Chapter 7 or Chapter 13 bankruptcy.

Bankruptcy under Chapter 7

Chapter 7 bankruptcy does not include a mechanism to assist you in catching up on payments and retaining your home. Therefore, if you’re falling behind and wish to remain in your home, this is probably not the chapter for you. However, there are additional advantages.

When you file for bankruptcy under Chapter 7, all of your property becomes part of the bankruptcy estate. The Chapter 7 trustee appointed to your case will liquidate (sell) your assets and make any necessary payments to creditors. The automatic stay allows the trustee to sell property that would have been foreclosed on otherwise if there is a potential benefit to the estate (the property must have sufficient equity).

Depending on your circumstances, the stay may also be beneficial to you:

If the property is your primary residence, the stay may provide you with additional time to secure alternative housing or negotiate a loan modification with the lender.

You may be entitled to a portion of the proceeds if the trustee sells the property for a sufficient price. After resolving any mortgages or other valid liens, the trustee must reimburse you for your homestead exemption before resolving any other creditors. Additionally, you are entitled to excess proceeds if the property sells for a price sufficient to pay off all of your creditors.

Bankruptcy under Chapter 13

The automatic stay in Chapter 13 bankruptcy may provide you with time to catch up on any mortgage arrears and remain in your home. You’ll repay debts (some in full, some in part) over a three- to five-year period—including delinquent mortgage payments.

To make Chapter 13 restructuring effective, you must have sufficient income to cover current mortgage payments and make payments on arrearages that accrued prior to filing bankruptcy. Once the court approves a Chapter 13 repayment plan that includes mortgage arrears, the lender is prohibited from foreclosing. However, if you fall behind on mortgage or arrearage payments following the approval of your plan, the lender will be able to proceed with the foreclosure.

Removal of the Automatic Stay

A lender may file a motion with the bankruptcy court requesting that the automatic stay be lifted (terminated) and the lender be permitted to proceed with foreclosure. You have the right to respond, and if you do, the bankruptcy court will hold a hearing before deciding whether to lift the stay. If the court lifts the stay, the lender may resume foreclosure efforts, unless the bankruptcy court orders otherwise.

Speak With Our Bankruptcy Lawyers In Phoenix & Scottsdale

Canterbury Law Group should be your first choice for any bankruptcy evaluation. Our experienced professionals will work with you to obtain the best possible outcome. You can on the firm to represent you well so you can move on with your life. Call today for an initial consultation. We can assist with all types of bankruptcies including Business BankruptcyChapter 7 BankruptcyCreditor RepresentationChapter 5 ClaimsChapter 13 Bankruptcy, Business RestructuringChapter 11 Bankruptcy, and more.

*This information is not intended to be legal advice. Please contact Canterbury Law Group today to learn more about your personal legal needs.

Written by Canterbury Law Group

Mortgage Financing After a Life Changing Event

Bankruptcy, foreclosure and other life events are bumps on the road to sustainable homeownership. With the recent events of the housing bubble and subsequent crash, many people may want a second chance to be homeowners. These “Boomerang Buyers” (a term often used to describe people who had to rent post-2008 but are returning to the homebuying market now that the economy has improved) may not know all the specifics of required waiting periods after their foreclosure, short sale or bankruptcy.The below chart covers the typical waiting periods associated with these types of events. Of course, as an experienced Loan Officer and Sales Manager at Academy Mortgage, I have seen exceptions occur. Working with the best mortgage team can help you get back into a home faster than you may have thought was possible.

Give me a call today so we can cover the specifics of your life event and set a plan to make you a homeowner again.

MichaelHeader

Conventional
Foreclosure 7 years from date completed to the disbursement date of the new loan
Deed-in-Lieu of ForeclosurePre-Foreclosure or Short Sale 4 years from either the date of sale or from the completion date to the disbursement date of the new loan
Prior Loan Modification 2 years eligible with Fannie Mae DU approval
Chapter 13 Bankruptcy 2 years from discharge date
4 years from dismissal date
Chapter 7 Bankruptcy 4 years from discharge or dismissal date
Multiple Bankruptcy Filings in the Last 7 Years 5 years from last discharge or dismissal date
Jumbo Loan Follow requirements specific to the proposed loan product

 

VA
Foreclosure
Deed-in-Lieu of Foreclosure 
2 years from date completed and title transferred back to lender
Pre-Foreclosure or Short Sale 2 years from credit approval date to date sale closed and title transferred to new owner
Prior Loan Modification Must have a 12-month satisfactory credit history after the event
Chapter 13 Bankruptcy 1-year payout has elapsed with all payments made on time and permission obtained from court for new mortgage
No wait time if discharged or dismissed
Chapter 7 Bankruptcy 2 years from discharge or dismissal date
Consumer Credit Counseling 1-year payout has elapsed, payments made on time, and agency permission for a new mortgage

 

FHA
ForeclosureDeed-in-Lieu of Foreclosure 3 years from date completed and title transferred back to lender
Pre-Foreclosure or Short Sale 3 years from the date of title transfer to FHA case number assignment
Prior Loan Modification No wait period, but past 12 months’ credit history must have no late payments
Chapter 13 Bankruptcy 1-year payout has elapsed with all payments made on time and permission obtained from court for new mortgage
No wait time if discharged or dismissed
Chapter 7 Bankruptcy 2 years from discharge or dismissal date
Consumer Credit Counseling 1-year payout has elapsed, payments made on time, and agency permission for a new mortgage

 

USDA
ForeclosureDeed-in-Lieu of Foreclosure 3 years from date completed and title transferred back to lender
Pre-Foreclosure or Short Sale 3 years from credit approval date to date sale closed and title transferred to new owner
Less than 3 years may be eligible if all mortgage and installment debt paid on time within the 12 months prior to the sale
Prior Loan Modification 3 years from modification completion date
Chapter 13 Bankruptcy 1-year payout has elapsed with all payments made on time and permission obtained from court for new mortgage
No wait time if discharged or dismissed
Chapter 7 Bankruptcy 3 years from discharge or dismissal date
Consumer Credit Counseling 1-year payout has elapsed, payments made on time, and agency permission for a new mortgage

 

Please Note: Shorter wait periods may be available under certain circumstances and depend on the reason for the derogatory credit event. Please refer to your Loan Officer for details.

 

All Loan Types: If a mortgage loan has gone through a previous modification, or the lender offered a short payoff, it is NOT eligible for a refinance.

All mortgage products are subject to credit and property approval. Rates, program terms, and conditions are subject to change without notice. Not all products are available in all states or for all amounts. Additional conditions, qualifications, and restrictions may apply. This is not an offer for extension of credit or a commitment to lend. MAC01215-1021324909

 

Sincerely,

Michael
Michael Burkes
Sales Manager Producing | NMLS #1427401
15333 N Pima RD 205
Scottsdale, AZ 85260
(602) 908-9484 – Cell Phone
(480) 696-3026 – Office
[email protected]
www.AcademyMortgage.com/michaelburkes
LO State Lic: 0933965
Corp NMLS: 3113 |
Academy Mortgage – 15333 N Pima RD 205, Scottsdale, AZ 85260

For state licensing information, please visit:

http://www.academymortgage.com/StateLicense

EHO