When the threat of foreclosure looms over you like an unholy specter, one way to exorcise it is to file bankruptcy. Chapter 13, specifically, has two tools you can use to fight the bank's attempt to foreclose on your home and make it easier for you to keep it. Here's how filing can help.
Get You Caught Up on Past Due Payments
The top reason banks foreclose on homeowners is because they fall behind on their mortgage payments. If they paid the past due amount today, the bank would call off all legal proceedings tomorrow.
The problem is, people struggling financially are rarely able to pull together the lump sum amount needed to bring their accounts current enough to avoid foreclosure. If their bank isn't willing to help them in any way, these homeowners are doomed to have their homes taken by short sales or foreclosures.
However, filing chapter 13 bankruptcy rescues homeowners from this hole in a couple of ways. First, an automatic stay is put in place that halts the foreclosure process. It doesn't matter if the bank was on the way to file the paperwork, bankruptcy law prohibits them from continuing without permission from the court.
Second, you'll be allowed to pay the past due amount over 3 to 5 years. By the time your case concludes, you should be completely caught up and out of danger of foreclosure.
Be aware, though, that you must continue paying any mortgage payments that come due after you file chapter 13. As long as you don't fall behind, again, you'll cure your arrears and save your home.
Eliminate Extra Mortgages
It's not unusual for homeowners to take out another mortgage or equity lines of credit. Unfortunately, it can be difficult to keep up with all those payments after falling on hard times. Even if you continue to pay your main mortgage as agreed, the creditors who hold your second or third mortgage can still foreclose on the home if you get past due.
A significant benefit of filing chapter 13 is that you can eliminate those extra mortgages though a lien stripping process. Essentially, if you are underwater on your home, the bankruptcy court will recategorize your second and third mortgages as unsecured debt and cancel it when you receive your bankruptcy discharge.
For instance, your home is valued at $275,000 but the amount you owe on your primary mortgage is $300,000, the bank would cancel your second mortgage of $75,000 with no consequence to you, making it easier to stay on top of your primary house payments.
If you're trying to avoid being foreclosure and save your home, contact a local bankruptcy attorney to see how filing a petition can help you.
For more information about chapter 13 bankruptcy, reach out to a firm like C. Taylor Crockett, P.C.
Share1 October 2020
Filing for bankruptcy has a tendency to make people feel ashamed and stressed out, and can turn into a big source of depression if not handled properly. As a counselor for couples and families, I have worked with various families throughout the years who have had to go through bankruptcy. And during this time, I have seen firsthand how, with the right mindset, going through bankruptcy can make people stronger in their financial lives and careers. I started this blog to provide information about the right things to do and the things that should be avoided while going through bankruptcy to minimize stress and maximize potential once the process is over. If you have any questions or concerns, hopefully they can be addressed on these pages.