Bankruptcy And Foreclosure
If you’re considering bankruptcy and foreclosure proceedings have started, you need to act quickly. Filing a bankruptcy will stop a foreclosure proceeding; however, you will need a plan to either repay the mortgage lender over time in Chapter 13, or surrender the property within roughly sixty days of filing the bankruptcy.
Bankruptcy And The Automatic Stay
When you file your Chapter 7 or Chapter 13 bankruptcy, the Automatic Stay goes into effect. This protection means that creditors—including your mortgage lender—are no longer allowed to try to collect on a debt. Foreclosing on property is the equivalent of attempting to collect on debt. As a result, when you file bankruptcy, all foreclosure proceedings come to a halt.
Foreclosure And Chapter 7
If you are behind on your mortgage and you file Chapter 7, the bankruptcy filing will serve to temporarily stop foreclosure proceedings. Because Chapter 7 makes no allowance for paying a mortgage lender, you will need to either make payments to the mortgage lender to get current, or plan to surrender the property in bankruptcy.
When you go through a foreclosure, if your mortgage lender sells the property and the proceeds from the sale are not enough to satisfy the debt, the mortgage lender can pursue you for the remaining balance. Chapter 7 protects you from this result. If you surrender your property in a Chapter 7 bankruptcy, the lender will not be able to pursue you for any shortages when they sell the property. In essence, any remaining debt is discharged by the bankruptcy filing.
Lastly, if a lender ‘forgives’ any remaining debt, you may receive a 1099 form from the federal government for forgiveness of debt. You will be responsible for the taxes on that forgiveness of debt, as it is treated as income for tax purposes. However, once again, Chapter 7 relieves you of this burden.
Foreclosure and Chapter 13
A Chapter 13 filing allows you to force your mortgage lender to allow you to ‘catch up’ on your mortgage over time. Typically, a Chapter 13 plan is a five year plan. If you are facing a foreclosure and want to keep the home, a Chapter 13 filing can allow you the time you need to continue making your normal mortgage payments while also slowly repaying the mortgage lender for whatever amount you were behind at the time you filed your Chapter 13.
You can also surrender a home in Chapter 13. As a result, you will be afforded the same protections against foreclosure you receive in Chapter 7, which are outlined above.
How Long Will Bankruptcy Hold Off A Foreclosure?
If you file a Chapter 13 and your plan proposes to pay the lender over time, the foreclosure proceeding will stop and as long as you continue to make your Chapter 13 plan payments, you will not face the threat of foreclosure. Additionally, at the end of the Chapter 13 plan, you will be current on your mortgage.
If you file Chapter 13 or Chapter 7 and do not make provisions to repay the lender the amount you are behind, you can expect that the filing of the bankruptcy will temporarily stall the foreclosure proceedings by about 60 days; however, your lender will typically file a motion for relief from the automatic stay. That motion will be approved by the court, and the lender will be allowed to proceed with their foreclosure.
If your foreclosure sale is coming up quickly, you may consider filing an Emergency Bankruptcy, and we can assist with that filing. The Emergency Bankruptcy allows you to receive the protection of bankruptcy while you work with your attorney to gather the required documentation for a normal bankruptcy filing.
Speak With A Charlotte Bankruptcy Lawyer Today
If you are considering filing bankruptcy, it’s important that you speak with a Charlotte bankruptcy attorney. The call is free and you will come away with a much better understanding of your options. You can reach us at 704.749.7747 or click to request a FREE CASE EVALUATION, and we will be in touch shortly.
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