Will Filing Bankruptcy Stop My Foreclosure?

ForeclosureMany Georgian residents are afraid that they may be headed towards foreclosure.  Foreclosure, which happens when the bank takes possession of a home, typically occurs when the homeowner falls significantly behind on making timely mortgage payments.  Georgians may fall behind on their mortgage payments for any number of reasons, especially right now in the current economic climate.

The thought of the bank taking possession of your house is certainly a disturbing and alarming one.  Fortunately, filing for bankruptcy may help you avoid foreclosure.  Specifically, if you file a Chapter 7 bankruptcy you should be able to at least delay a foreclosure for several months through a court order called the automatic stay.  Even better, people may also save their home from the foreclosure process entirely if they choose to file a Chapter 13 bankruptcy.

What happens during a foreclosure?

Foreclosure is a long and complicated process which cannot be accomplished overnight.  In most cases, the bank (or other lender) will not initiate the process until the homeowner has missed many payments, typically about three or four.

(It is important to note that during the first month when you realize you can no longer meet your mortgage obligation, you should contact a knowledgeable attorney who can assist you in restructuring your debt so that you can pay your bills as soon as possible in the future).

To initiate the foreclosure, the lender sends notification of the foreclosure to the homeowner.  This notification lays out the lender’s legal right to foreclose on the mortgaged property and may also explain the amount of money the homeowner can pay in order to avoid the foreclosure at that point.

If the homeowner is unable to take any steps to catch up on the mortgage payments and avoid the foreclosure, bankruptcy may provide temporary or permanent relief.

How does bankruptcy help the homeowner?

The first way that bankruptcy helps a homeowner delay foreclosure is by virtue of the automatic stay.  As soon as a person files a Chapter 7 or Chapter 13 bankruptcy with the bankruptcy court, by law the court is required to issue an order called the automatic stay that instructs the person’s creditors, including the mortgage lender, to immediately stop all collections of debts.  So, if the mortgage lender has scheduled the person’s home for foreclosure, the lender is legally prohibited from moving forward during the bankruptcy process (which can take about three or four months).

Another way bankruptcy can help is through the Chapter 13 bankruptcy process.  If you have a certain level of regular income, then you may be able to file a Chapter 13 bankruptcy which would allow you to pay off the late mortgage payments over the course of a court-approved repayment plan.  If you can meet these obligations, you can avoid the foreclosure.

Importantly, bankruptcy can also help you get rid of second and third mortgage payments.  If your home value has dropped significantly then you may not have any more equity in the home that would secure the second and third mortgages.  If this is the case, the bankruptcy court may be able to “strip off” those mortgages from your payment plan by categorizing them as unsecured debt, which is not usually repaid in the course of Chapter 13 proceedings.

While filing for bankruptcy seems like a great way to avoid a foreclosure, doing so carries significant implications and consequences of its own.  By consulting with a highly knowledgeable bankruptcy attorney can really help.  Contact our office today to speak to one of our attorneys who can explain these issues to you and assist you with your case.