Stopping a Home Foreclosure with Bankruptcy

Bankruptcy and Foreclosure Proceedings

Stopping a Home Foreclosure with BankruptcyIf you are struggling to meet your financial obligations, and have fallen behind on your mortgage payments, you may be worried about a foreclosure proceeding and the loss of your home. You may be considering filing for bankruptcy to prevent or stop foreclosure proceedings. Here’s what you need to know.

The most important thing to understand is that bankruptcy won’t terminate a foreclosure proceeding—it will only suspend a foreclosure action. Once your bankruptcy is complete, your lender can move the process forward again.

That doesn’t mean, however, that a bankruptcy filing won’t help you keep your home. Upon the filing of a bankruptcy petition, an automatic stay will go into effect, preventing your creditors from calling, writing or taking any other legal action to collect debts from you. The automatic stay can get you some relief from the constant outflow of cash. In addition, by discharging other debts, you may be able to free up the funds to make your monthly mortgage payment affordable.

It is also important to understand that you cannot seek to discharge the debt on your home in a Chapter 7 proceeding and still keep the house. Both state and federal bankruptcy laws grant you a certain dollar amount exemption in your home in a Chapter 7 filing, but it’s an exemption in the equity in your home. Unfortunately, you can only recognize the equity in your home when you sell it.

The best way to save your house through bankruptcy is to file Chapter 13 reorganization and work out a new payment plan with your mortgage lender. You will still get the benefit of the automatic stay, and will have that benefit for a three-to-five-year period. In many instances, when you reorganize, you can get your lender to waive late fees and penalties, and fold any arrearages into the principal balance of your note.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Will the Short Sale of Your Home Damage Your Credit Rating?

If you are behind on your mortgage and facing potential foreclosure proceedings, is it better to dispose of your property through a short sale (where you sell your home for the market value, even though it’s less than the amount remaining on the mortgage) or to go through the foreclosure process? Is there any advantage to using a short sale to address your financial challenges?

Short Sale vs. Foreclosure—Any Benefit?

According to most industry experts, the impact of a short sale on your credit will be almost identical to that of a foreclosure, assuming that you have chosen to short sell your home because you are behind on your mortgage. Most credit reporting agencies reduce your score by a specific number of points for certain events, including:

  • A payment more than 30 days late
  • A payment more than 90 days late
  • A foreclosure, short sale or deed-in-lieu of foreclosure
  • A bankruptcy filing

Industry representatives also say that it takes about the same amount of time—around 7 years—for a person to restore his or her credit rating after a foreclosure or short sale. Ironically, the higher your credit score before the short sale or foreclosure, the longer it will typically take to reestablish that high credit rating.

According to a study by the Fair Isaac Corporation (FICO), the industry leader in software to calculate credit scores, people who short sell a home have a higher tendency to default on other credit obligations. One report showed that approximately half of all people who sell short default on another obligation within two years. Because of this data, credit reporting agencies tend to treat short sales like foreclosures.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

What is a Reaffirmation Agreement and Should I Sign It?

When you seek protection from creditors through a Chapter 7 liquidation proceeding, you have the right to reaffirm any debts, such as a vehicle loan. When you sign the reaffirmation agreement, you voluntarily waive the right to discharge the debt on that property. You may need your vehicle and be considering signing a reaffirmation agreement. Do you have to sign a reaffirmation agreement in order to keep your property? What happens if you do? What happens if you don’t?

Should I Sign the Reaffirmation Agreement?

A common fear that many people have is that, if they don’t sign the reaffirmation agreement, the creditor will either foreclose or seek repossession. This is a theoretical possibility, but rarely happens in practice, provided you remain current on your payments. If you establish good habits after your bankruptcy filing, you may be able to rebuild your credit to the point where you can refinance your home, so that you don’t need to worry about the impact of the bankruptcy filing.

With respect to a vehicle, there is a chance that the finance company will repossess, even if you are current, if you have sought to discharge the debt, but not signed a reaffirmation agreement. In general only Ford Motor Credit pursues post-bankruptcy repossessions even where payments are current, but every lender is free to set their own policies. Your best option may be to purchase another vehicle once your bankruptcy proceeding is complete, but you can sign a reaffirmation agreement, and you will be protected against repossession. However, you want to be certain that you can afford the car, and that the vehicle is worth what you owe on it.

With respect to other personal property, it is generally not advisable to sign a reaffirmation agreement. For example, with respect to furniture, jewelry, electronics or other items, the likelihood that the creditor will actually come to your home and take your property is minimal. These types of items lose much of their value as soon as you take them home, so your creditors don’t have much incentive to repossess them.

Contact John Hargrave & Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.

Can You Prevent the Loss of Your Home or Car by Filing for Bankruptcy Protection?

If you have fallen behind on your mortgage or car payments because of the loss of your job, medical expenses, a divorce, or for any other reason, you may live in daily fear that you will lose your home or your vehicle. You may have considered filing for bankruptcy, but heard conflicting stories about whether or not you can protect real property or a car through a bankruptcy petition. Here’s what you need to know.

The Automatic Stay Provided by the Bankruptcy Laws

When you file for bankruptcy, an automatic stay immediately goes into effect, suspending all legal action related to any debt that is part of the bankruptcy. This means that your creditors cannot call or write you in an effort to collect on a debt. It also means that they cannot initiate or continue any legal action (outside of the bankruptcy proceeding) and that all legal efforts to collect from you, or to foreclose on or repossess your property must immediately stop. In order to take advantage of the automatic stay, however, you must file for bankruptcy protection before the foreclosure sale, or before your vehicle has been repossessed. It may be possible, with respect to a car, to get the vehicle back if you file for bankruptcy after it has been repossessed, but before it has been sold at an auction.

Discharge vs. Reorganization of Your Debts

Some creditors, such as credit card creditors and medical creditors, are unsecured creditors. This means that there is no specific piece of property that their debts are attached to. On the other hand, some creditors are secured creditors. The most common secured creditors are automobile lenders, who hold a lien on the car, and mortgage companies, who hold a mortgage on a home. Both Chapter 7 and Chapter 13 bankruptcy let you discharge most of your debts. However, if you want to keep the property which is subject to a secured creditor’s lien or mortgage, you need to keep paying that secured creditor.

A Chapter 13 bankruptcy provides a unique opportunity to have your unsecured debts discharged and to restructure your secured debts. While it is typically not feasible to change the terms of mortgage loans in a Chapter 13 bankruptcy without the cooperation of the lender, it is often times possible to change the terms of car loans. For example, in a Chapter 13 bankruptcy many individuals are able to reduce the total amount they need to pay to their auto lender by lowering the effective principal balance owed and interest rate to be paid to the auto lender. In addition, these payments can be stretched out over 5 years, so if you have a car payment that is too high, but only two years left on payments, then you can lower your monthly payment so that it is instead paid out over 5 years.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-759-6022 (toll free at 866-662-3191).

If You Owe Money on Your Home, Do You Really Own It?

If you are like most people, when you buy a home, you finance most of the purchase with money borrowed from a bank, mortgage company, or other lender. When you do, the lender secures their loan to you through a mortgage. Does this mean that the bank technically owns the house until you make the final payment? The answer is no.

When your bank loans money to you and secures the loan with a mortgage, the mortgage gives them the right to hold a lien on your property. You become the owner and, as the owner, you have all rights of use and enjoyment of your property. You may agree in the mortgage not to take actions that intentionally diminish the value of the property, or you may be prohibited by the terms of your mortgage from converting the property to rental property. As a general rule, though, your lender cannot tell you what you can do with your property.

The bank’s interest in the home only becomes relevant if you stop making payments on the home, if you file for bankruptcy, or if you decide to sell your property:

  • If you attempt to sell your home, the buyer cannot take clear title unless the lien that your bank holds is satisfied. To satisfy the lien, you must typically pay the full principal balance remaining on the loan.
  • If you file for bankruptcy, your lender must be listed as a creditor in the bankruptcy filing. A bankruptcy filing will allow you to ‘walk away’ from the home and forgive your personal debt to the lender. However, if you want to keep your home, you will need to continue to make payments to the lender. If you stop making payments on a mortgage, the bank cannot simply take possession of your home, as they could if they truly owned it. Instead, they must go through the foreclosure process, and must prove that their lien on your home is legitimate.

Contact John Hargrave and Associates

We have provided comprehensive counsel to individuals in and around Barrington, New Jersey, since 1977. To schedule a free initial consultation, contact our office by e-mail or call us at 856-547-6500.