Filing Bankruptcy to Stop Foreclosure

Posted on November 20, 2012 at 8:41am by

In most cases, filing bankruptcy triggers an automatic stay that prevents creditors from proceeding with foreclosure. As long as you file bankruptcy before the foreclosure sale starts, your mortgage lender cannot sell the property out from under you. One exception occurs in cases where the debtor had two prior bankruptcies dismissed within the past year. In those situations, there is no automatic stay, and the debtor must file a motion asking the court to impose the stay. The court must grant that motion before the foreclosure sale, or else the third bankruptcy filing will be powerless in stopping it. If you are facing foreclosure and want to save your home, an experienced Kansas City bankruptcy attorney can help you decide if bankruptcy is the right path for you.

How Chapter 13 Can Help You Avoid Foreclosure

Many troubled homeowners decide to file Chapter 13 bankruptcy to save their homes from foreclosure. Not only does the act of filing stop pending foreclosure actions, Chapter 13 offers consumers the opportunity to catch up past due mortgage payments, and best of all, the mortgage companies are compelled to accept the payments. In Chapter 13 bankruptcy, you enter into a repayment plan that typically lasts three to five years. If you want to keep your home, you will pay off mortgage arrears through the plan, emerging from bankruptcy current on your mortgage. It is important to note that you must make your regular monthly mortgage payments while in Chapter 13. One additional benefit of Chapter 13 is that if you have a second mortgage loan on your home property, you may be able to stop paying on that loan and have the mortgage avoided through a process known as lien stripping. Make sure to speak with a qualified Kansas City bankruptcy lawyer regarding this potentially very powerful tool.

Even if you do not want to keep your home, Chapter 13 might still be a good option. Rather than losing your home to foreclosure, you can surrender it in Chapter 13 while paying off other debts, such as car loans and non-dischargeable income taxes. If you end up owing a deficiency balance on your home, it will be treated as an unsecured debt in your Chapter 13 plan, and the mortgage creditor will receive a percentage along with other unsecured creditors.

How Chapter 7 Can Help You Avoid Foreclosure

As with Chapter 13 bankruptcy, the act of filing Chapter 7 will halt pending foreclosure actions. Unlike Chapter 13, however, Chapter 7 bankruptcy does not offer you the chance to catch up past due mortgage payments.

In Chapter 7 bankruptcy, the bankruptcy trustee sells non-exempt assets (if any) for the benefit of creditors, and most debts are discharged within about three months of filing. Although you cannot use Chapter 7 to catch up mortgage payments, you can surrender your home through Chapter 7 and discharge all remaining liability for it. Chapter 7 may be a good option if you have a lot of unsecured debt to discharge, and you want to surrender your home, or you expect to sell it, complete a short sale or obtain a loan modification while the bankruptcy case is pending.

If you are at risk of foreclosure and want to know more about how bankruptcy can help, contact a knowledgeable Kansas City bankruptcy lawyer today.

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