If you are facing an imminent home foreclosure, Chapter 7 bankruptcy usually buys you relatively little time, but may be enough for what you need. Chapter 13 can usually buy you much more time.
The filing of a bankruptcy stops a foreclosure. It can stop the foreclosure temporarily or permanently, depending on what you need and what resources you have to work with.
Buying a Little Time with Chapter 7
Filing for any kind of bankruptcy immediately puts into play the “automatic stay,” which stops all collection activity against you or your property, including foreclosure. This includes both nonjudicial trust deed foreclosures and ones involving a lawsuit. Under Chapter 7 that protection lasts only a very limited amount of time, generally about the three months or so that this type of bankruptcy case lasts. And the mortgage lender can even ask the bankruptcy court to cut short that protection if it chooses to file a motion to do so.
Given this relatively brief protection, a Chapter 7 bankruptcy is worth considering in two situations:
- You want to keep the home and, once you file for bankruptcy to write off the rest of your debts, you will have enough cash flow to make both your regular mortgage payments PLUS enough extra to catch up on the late payments within about a year. Most lenders will allow you to enter into a forbearance agreement — they agree not to foreclose as long as you continue making the agreed regular and catch-up payments. How long they allow for this depends on each lender and your individual circumstances.
- You’ve decided to let your home go back to your lender, but need just another couple of months to move. The bankruptcy filing would stop any immediate foreclosure, and even if the lender is extremely aggressive you will likely have at least an extra few weeks in your home. And in some situations, the lender may back off while the case is in bankruptcy, or may be willing to negotiate a time for you to leave that will work with your schedule.
Buying a Lot of Time with Chapter 13
Instead of buying a few weeks or at most a year, Chapter 13 bankruptcy can usually give you as much as five years to catch up on your back payments. If you are in foreclosure or anticipating that you will be soon, you may be tens of thousands of dollars behind on your mortgage. You will need as much time as possible to catch up in order to keep the monthly catch-up payment low enough so that keeping your home becomes feasible.
Beyond this, Chapter 13 gives you a more flexible and powerful package of benefits. Instead of being at the mercy of your mortgage lender for how much time you will have to catch up, you are much more in control of that process, allowing you to fit your mortgage obligations in with your other important creditors. This includes other creditors related to your home, such as property taxes, any homeowner association dues and income tax or support liens on your home. Chapter 13 also often allows you to get rid of a second mortgage, which alone could save you tens of thousands of dollars and make your home much more affordable.
A Chapter 13 case comes with a fair amount of flexibility. So your payment plan can usually be adjusted to reflect changes in your finances, within some limits. That gives you better odds for
keeping your home in the long run. And it also means that if your motivation for keeping the home changes — if you get a job out of state or your children finish at the local school so you don’t mind moving — you can change your mind and surrender the home later, in a financially more protected way.
We are dedicated to helping you clearly understand your options so that you can make wise, fully-informed decisions about your debts starting right now. We can make that start to happen for you with your free and confidential consultation. Don’t think that you should do without legal advice or that you can’t afford to have it. Contact your Dallas – Fort Worth bankruptcy attorneys at the Bailey & Galyen today.