If you are facing foreclosure, filing bankruptcy may help. At Benson Law Firm, we can answer your questions and guide you through the bankruptcy process. Below, we explain what you need to know about how bankruptcy may be able to stop foreclosure.
Are You Trying to Save Your Home?
You and your husband have a beautiful home in an inner-ring suburb of Cleveland. You love your life there and everything is going smoothly. Your husband is a contractor and you have a part-time job so you can bring in some money but also spend quality time with the kids.
Then, your world is turned upside down when your husband has an unexpected heart attack. He survives but is laid up for months. Now, the money only comes in when he’s working so this hiatus drains your savings and soon you’re unable to keep up with expenses. You have to put food in your kids’ mouths and pay the light bill so you’re not walking around in the dark. But there just isn’t enough money at the end of the month to pay the mortgage.
But things will improve once your husband returns to work. Unfortunately, he’s taking longer to recover than expected because of his diabetes. Now six months behind, you get a FedEx packet in the mail with a Summons and Complaint in Foreclosure. You panic. The bills are piling up and you’re about to be homeless. Is there anything you can do to save this life you’ve built?
The Automatic Stay, a Powerful Tool
As with a garnishment, bankruptcy carries with it a very powerful tool – the automatic stay. That means that not only must your creditors stop calling, but all civil lawsuits must stop as well. And this includes that dreaded foreclosure. So which kind of bankruptcy do you want? That depends.
Chapter 7 Bankruptcy
If you and your husband have a combined income that is below the median for a family your size, you can file for a liquidation of your debts. Although this will temporarily stop foreclosure, it doesn’t kill it. After you get your discharge, the mortgage lender can restart the lawsuit and you’re back to square one. So should you file under Chapter 7? Again, that depends.
Chapter 13 Bankruptcy
Under Chapter 13, you can catch up on your back mortgage payments over as much as five years. This might be attractive if the dip in income was truly only temporary. However, there are other alternatives that might be even more appealing.
“Chapter 20” Bankruptcy
Some folks decide they want the benefits of a liquidation of their credit card and medical debt, but also want to make sure to save their house and stop foreclosure. In this case, those who qualify can file a Chapter 7 case to eliminate their personal debt and then move on to file under Chapter 13 to address their mortgage obligation. This is a nice option because debtors get both a fresh start and save their homes from the clawing reach of the bank.
Are There Other Options to Stop Foreclosure?
Bankruptcy is not the only option when served with a foreclosure Summons and Complaint. But the matter must be dealt with promptly in order to maximize the number of options, preferably, before receiving the FedEx packet. The important thing is to talk to your foreclosure/bankruptcy lawyer asap.
In limited cases, a homeowner can go toe-to-toe with a lender when it’s clear that they have made fatal errors, when ownership isn’t clear or where the servicer has failed to follow proper procedures. In our experience, these kinds of cases are few and far between. Thus, it is usually advisable for an attorney to answer the complaint and then request mediation.
In Cleveland, we have a first-rate mediation department that does an excellent job in resolving foreclosure cases through a highly structured facilitation of modification review. In other cities, mediation departments are not available but the courts do designate magistrates or others to perform the same function. All in all, the mediation results are good and, if there is a solution to be had, we can find it through this process.
A modification can transform a previously unattractive mortgage situation into a performable product, in line with the homeowner’s current income and property value. As you might expect, the borrower must articulate a hardship. But we have not had a client who has been denied a modification on this basis.
This is a very complex area of regulatory law and should not be attempted without expert assistance. One of the common problems we have run up against is something called “dual tracking.” Currently, when a lender receives a modification request at least 37 days prior to a sheriff sale of the property, they are not permitted to continue to pursue the sale without first responding to the modification request.
There are other rules that banks must live by, but we don’t want to put you to sleep right in the middle of reading this post.