First order of business: it’s important to know what is “bankruptcy” and what is “foreclosure“.
Bankruptcy is a federal court process designed to help people eliminate or repay their debts under the supervision and protection of the bankruptcy court. They are often described as “liquidation” or “reorganization” of debt.
This will only temporarily stop foreclosure proceedings. It will not permanently stop foreclosure. Most lawyers in the Philadelphia suburban areas will charge anywhere from $3000 to $5000. A good lawyer will evaluate your situation and let you know in advance if they think you’ll qualify.
Filing for Chapter 7
In Chapter 7 bankruptcy, you ask the court to discharge most of the debts you owe. In exchange for this discharge, the bankruptcy trustee can take any property you own that is not exempt from collection, sell it, and distribute the proceeds to your creditors.
Filing Chapter 13
In Chapter 13 bankruptcy, you file a repayment plan with the court to pay back your debts over time. The amount you’ll have to repay depends on how much you earn, the amount and types of debt you owe, and how much property you own.
If you maintain the payments set up through the bankruptcy process you may very well keep your house. You must make your payment on time every month. If you miss even one payment you will be right back in the foreclosure process where you left off. Foreclosure is a legal process available to creditors who seek payment on a debt that is secured by real estate. The procedures and timelines vary from state to state but generally speaking, the creditor (plaintiff) is granted a judgment hearing and assuming the judge rules in favor of the creditor, a judgment is awarded in the amount of the debt plus costs. Eventually a sheriff sale is scheduled and the real estate is sold as a means of recovering at least some of the creditor’s debt.
Will filing Bankruptcy stop the foreclosure?
When you file bankruptcy, an “automatic stay” goes into effect. The automatic stay prohibits most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor proceed with collections.
Depending on circumstances, you may be able to temporarily stop foreclosure proceedings (and hold off a sheriff sale) until you have received your discharge from bankruptcy. Usually, to keep a home that is in foreclosure, you will have to make a deal with the mortgage company. This is the key, the only way to keep your house is to work something out with your mortgage company to repay the past due amount thru a loan modification.
Pros & Cons of bankruptcy:
The foreclosure proceeding will be temporarily suspended.
There will be a bankruptcy on your record for 10 years. The mortgage company can work around the bankruptcy and still foreclose. If you are 1 day late on any trustee payments, your case may be dismissed, the stay will be lifted and you will be back in foreclosure.
Before filing bankruptcy just to stop foreclosure and the sheriff sale, please ask your attorney these questions; “If I can’t make the loan modification payments on my mortgage, will I be able to make the payments to the bankruptcy trustee?
Is filing bankruptcy worth the $3500 – $5000 attorney fee to buy a couple of months plus the 10 year hit to my credit?” As always, we encourage you to contact an attorney and/or a tax advisor at any time if you have legal and/or tax related questions pertaining to bankruptcy, foreclosure, or the disposition of real estate.
Selling your home as a short sale
If you’d like to know more about short sales contact me. I’ve successfully helped 70 homeowners get their home sold. by Rick Sheppard