Can You File Bankruptcy Once Foreclosure Has Started on Your Home?
- Foreclosure is the process mortgage lenders use when the homeowner defaults on his mortgage loan. While foreclosure law varies by state, the general premise is the same: once you default on your mortgage payments by 60 to 90 days, the mortgage lender will accelerate the loan, calling the entire balance due and owing immediately. Since most people are unable to pay the entire balance immediately, the mortgage lender will then begin the foreclosure process, which can last up to two years depending on your state's law. The end result is that the lender will schedule a foreclosure sale and auction your home to the highest bidder.
The foreclosure process begins long before the sale. If you're thinking about filing for bankruptcy, the important date to know is the date of the actual foreclosure sale. - Bankruptcy immediately stops all collection activity from all creditors, including mortgage lenders, acting as a stay. This stay occurs automatically when you file your case, which is why the Bankruptcy Code and bankruptcy professionals refer to it as the automatic stay. If you file bankruptcy before the foreclosure sale occurs, the bankruptcy will stop the sale. Whether you can then keep your home or not depends on whether you file Chapter 7 or Chapter 13 bankruptcy.
- If you file Chapter 7 bankruptcy and you're in default on your mortgage, your attorney will likely recommend that you surrender the home and move on. Chapter 7 bankruptcy is a total liquidation. A Chapter 7 trustee will sell any non-exempt assets you have, and if you have any property with liens, such as a house with a mortgage or a car you financed, you can only keep them if you can afford to keep repaying and if you were current at the time you filed Chapter 7. However, if you do surrender your house in a Chapter 7, you will walk away owing nothing. Your Chapter 7 discharge includes the mortgage debt and any past due water bill or property taxes, and your legal obligation to repay is gone.
The benefit of filing a Chapter 7 case before your foreclosure is that it may give you more time in your house before the sale. The mortgage company will need to ask the court to lift the automatic stay, and then it must reschedule the sale. - If you want to save your house, a Chapter 13 bankruptcy could help you do so if you can afford the mortgage payment plus extra. A Chapter 13 case is a repayment arrangement in which you file a plan with the court proposing to repay your creditors a certain way. You must pay a Chapter 13 trustee enough every month to make your regular mortgage payment, plus extra to pay the amount you're behind, spread out over three to five years. If you file a Chapter 13 before the foreclosure sale occurs, you can propose to catch up on your mortgage through the plan. If you file your case after the foreclosure sale, however, you've filed your case too late.