Law Offices of Nicholas Gebelt

How Bankruptcy Can Save Your Home From Foreclosure

Many people throughout the country have realized that they are too much in debt to be able to repay their loans. It can be terrifying and also overwhelming for a person since they do not want to lose their home and assets. One of the first things to consider would be to file for bankruptcy. The problem with this is that many people worry that they will lose their home in the process, yet this is not the case. Filing for bankruptcy can help you keep your home while getting your finances on track. These are some of the ways to save your home during bankruptcy.

Automatic Stay

By law, when you file for bankruptcy, the law prohibits all your creditors from taking any collections from you, including foreclosure and also repossession. This is what is known as “automatic stay,” and will give you peace of mind for a while for all the stresses that you have. It only lasts for a few months after which all the collection actions resumes. This is the time to look for a solution since the stay does not grant you long-term relief.

Chapter 13 Bankruptcy

It is known as reorganization bankruptcy. It is one of the best ways to save your home. Chapter 13 Bankruptcy allows a person the chance to reorganize the debts that they have into a manageable payment plan. By filing for chapter 13, you can make arrangements to repay the arrears that are on your mortgage by three to five years. However, you should stay current on the mortgage payments and also make monthly bankruptcy installment payments. This chapter helps in numerous ways:

  • It gives the debtor time to make up for the amounts that are long overdue.
  • Interests on the arrears stop.
  • Late payment penalties also stop.
  • Many debts especially the non priority unsecured loans will not have to be paid.
  • Payments on the other debts will have to be delayed until the mortgage is paid in full.
  • Some of the second mortgages may be removed as charges against the real estate.
  • You may even be able to modify the terms of the second mortgage such as the interest on it.

The debtor is the one who proposes a payment plan, and a copy is mailed to every creditor. The program must meet the best interest of creditors test and the best efforts test. The amount the debtor pays to the unsecured creditors should be the largest of these three amounts:

  • The amount needed to pay the priority claims in full.
  • The amount of disposable income as seen in the means test.
  • The amount to be distributed in a hypothetical Chapter 7.

The first payment is made within thirty days of filing the plan and every month after that. This plan binds all the parties once it is confirmed and the creditors have no option but to accept the payments given. If you stop making the plan payments, the trustee will ask that your case is dismissed as soon as possible.

Chapter 7 Bankruptcy:

It is the type of bankruptcy that wipes out most of your debts immediately, with a few exceptions. While filing for chapter 7, there are two times that you may save your home from foreclosure: the first one is before you file and the second one is when you file for the bankruptcy.

You are advised to have an attorney to help you out since both of these processes are overly complicated. They will tell you if your home is at risk or not. Here, the automatic stay lasts only as long as the property is not abandoned by the trustee.

A creditor may seek relief from this automatic stay to complete the foreclosure if there is a possibility that the claim secured will be higher than the value of the security during this bankruptcy. This chapter provides temporary relief from foreclosure, but not a permanent solution.

The most important thing to note regardless of the type of bankruptcy you file is that you cannot keep a house without paying for it. Bankruptcy will not wipe away any mortgage debt that you have but can stop the foreclosure in the short term. You should, however, consider whether it makes sense to keep the house.

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About the Author

Mr. Nicholas Gebelt represents debtors—individuals, couples, and Businesses—and helps them succeed in an area fraught with traps for the uninitiated.

In light of the COVID-19 (coronavirus), we offer our clients the ability to meet with us via video conferencing and telephone. Please call our office at (562) 777-9159 to discuss your options. We are here for your legal needs now and in the future. Thank you.

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