Many people who are facing foreclosure proceedings file for bankruptcy in a last ditch attempt to save their homes. However, one must understand that simply filing for bankruptcy will not always stop the foreclosure proceedings. Before you file for bankruptcy it is also important to understand the various factors relating to foreclosure. This will ensure that you make the right decision.
What Is Foreclosure
To understand how bankruptcy can affect your foreclosure proceedings, you first need to understand what foreclosure is all about. A foreclosure is basically a legal process that is started by the lender when the borrower defaults on the loan.
When a borrower defaults on a loan which was secured against a property, the lender can accelerate the loan. In other words, the lender would simply ask the borrower to pay off the whole loan immediately otherwise the lender would start the foreclosure proceedings.
Most states require that the lender should go to the court to start the foreclosure proceedings. This is known as judicial foreclosure. This can take anywhere between 18 months to 3 years.
In states that allow deeds of trust rather than mortgage, foreclosure proceedings can be finalized within just a few months. All that the lender has to do is notify the trustee named in the deed of default. The trustee will send notices. The trustee will record the default at the country courthouse. If the default is not cured within the stipulated time period, the trustee will sell the property and pay off the lender.
Options Under Chapter 7
If you are thinking about filing Chapter 7 bankruptcy to stop foreclosure, you would be wrong in doing so. This is because Chapter 7 will not prevent foreclosure. However, what it will do is that it will put an automatic stay on the foreclosure proceedings. But remember that the lender would go to the court and ask for the stay to be lifted. And in most cases this will be granted. So if between this short span of time you can catch up on your default payment you can save your house.
However, if you have no equity in your home then losing it in a foreclosure will not impact your present financial situation. It is best to simply walk away from it and get your finances in control.
If you have non-exempt equity in your home, then the bankruptcy trustee will oppose the foreclosure in the court. The trustee will sell off the property so that the lender is paid in full and the unsecured creditors get as much as possible. It is best to let the trustee sell your property because he/she try to seek the highest price for the house. After all, the trustee is paid a commission on what he/she is able to give to the unsecured debtors.
If you have non-exempt equity, Chapter 7 bankruptcy will give you enough time to either sell your home or redeem it. A Chapter 7 bankruptcy usually takes 4 to 6 months and at the end of it most of your debts are discharged. After that you can refinance your loan or sell your home. The lender would be more than happy to refinance your loan, if you can convince the lender that you will pay for the renegotiated loan.
Options Under Chapter 13
If you want to stop foreclosure proceedings, then Chapter 13 is your best bet. It gives you ample time to catch up on your default payments. However, you have to show that you have enough disposable income to pay your secured debts and 25% of your unsecured debts. You can work out a repayment plan according to which you will repay some of your debts within 3 to 5 years.
Let us say that you have enough disposable income to fund your repayment plan. Under such circumstances you can use the equity of your home to refinance and then use the loan to pay for your repayment plan. This way you save your home and also repay your debts.
To know exactly what are your best options are, it is best to consult an experienced bankruptcy attorney. You just might be able to discharge your debts and also save your home.