Let Us Be Your Advocates!

Salt Lake City: 801-658-9296 San Diego: 619-330-1183

Declaring Bankruptcy to Avoid Foreclosure

Declaring Bankruptcy to Avoid ForeclosureFiling for Bankruptcy

If you’re dealing with foreclosure, chances are you are struggling with a less-than-ideal financial situation. In plenty of cases, a sudden change in income makes it impossible to pay a mortgage, making foreclosure a looming threat. Fortunately, there are tools for dealing with financial hardship, and you have legal guarantees that help protect you from suddenly ending up on the street with no chance to take care of yourself.

Bankruptcy is a common way to settle debts that are beyond your ability to pay right now. It’s a legal tool that uses the courts to force negotiation between you and whoever may have lent you money. In the case of your mortgage, bankruptcy can potentially change the nature of your payments. It can also be used as a stall to help you buy a little time to catch up or pursue an alternative course of action.

If you’re facing foreclosure, the team at Foreclosure Advocates can help you determine if declaring bankruptcy is the best way to prevent it. If this is the route you choose to pursue, we’ll connect you with a trustworthy and experienced bankruptcy attorney. Contact us today to discuss your foreclosure avoidance options.

Chapter 13 Bankruptcy

Chapter 13 is the type of bankruptcy that helps people catch up and stay in their homes. It allows you to work out a deferred payment plan. The amount of time in that plan will depend on the arrangement, but if you can catch up during the duration of the bankruptcy, then you get to keep your home and get back to normal. It’s a powerful tool for helping people dealing with foreclosure.

How It Can Prevent Foreclosure

Chapter 13 bankruptcy specifically helps by addressing your late or unpaid payments. When you file for bankruptcy, you’ll plead for a timeline. The most common timeline is five years, but this can vary. The gist of the agreement is that you’ll continue making your mortgage payments plus a scheduled monthly amount as part of the Chapter 13 agreement. If you keep up your end, you get to end the bankruptcy still owning your house and only owing according to your original mortgage.

It gets more complicated if you have a second or third mortgage. In most cases, the second and third mortgages are typically secured with equity. Equity is basically the amount of your original mortgage that has been paid down. You can think of this as the amount of your home value that belongs to you free and clear.

In the case of multiple mortgages, if you’re underwater and can’t keep up, Chapter 13 can potentially reclassify your second and third mortgages. It can change them from mortgages to unsecured debt. While you’ll still owe that money, those additional mortgages can no longer be used to foreclose your house, so you can focus on the primary mortgage.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is altogether different from Chapter 13. Chapter 7 is not really intended to help you keep assets. Instead, it’s designed to help you liquidate everything, pay what you can, and walk away from the rest. It’s rarely the first resort, but when options are limited, it can still be a useful tool. When it comes to foreclosure, Chapter 7 offers a few specific advantages that can help you with your house.

How Chapter 7 Bankruptcy Can Stall Foreclosure

The most important part of Chapter 7 bankruptcy is the automatic stay. When you file with a court, they will automatically put a stay on all of your outstanding debts. This stay means that no one can collect on any of those debts until the bankruptcy is settled. That includes your mortgage.

With your mortgage stalled (usually for several months), you have time to pursue whatever options remain and try to resolve as many of your financial challenges as possible.

While Chapter 7 is a powerful tool, it’s important to understand that it isn’t a guarantee. Lenders have things they can do in response to the automatic stay. Most notably, they can file for relief from the stay. If granted, they can get back to pursuing debts and even finishing foreclosure. These motions are treated on a case-by-case basis. The good news is that getting the stay and filing for relief both take time. Even in the worst-case scenario, you still get a little more time to try to work on a plan.

Connect With a Bankruptcy Attorney

The two most important resources you have in your bankruptcy are knowledge and an attorney. At Foreclosure Advocates, we can provide you with the knowledge you need and connect you with a reliable bankruptcy attorney. The attorney can help you navigate the numerous pitfalls and legal snares along the way. They can help you understand the different elements of bankruptcy and come up with the best course of action. 

Most of all, your attorney can help you get through the process intact. It’s easy to be overwhelmed by legal systems. It’s why lawyers have to go to school for so long. With an expert in your corner, you have the best chance of getting the recourse you need. Contact Foreclosure Advocates today to learn if bankruptcy is the right course of action for you.