When a borrower has missed mortgage payments, lenders send out a notice stating the loan is in default and foreclosure proceedings will begin. This notice generally goes out when three payments have been missed. If you have received such a notice, you need to take action or your home will eventually be sold at auction.
The actual foreclosure process depends on the language used in your deed of trust. But, no matter whether the lender is required to initiate a lawsuit and proceed with a judicial foreclosure, or can use the non-judicial foreclosure process, you will lose your home if you do not take some steps to save it. Filing a bankruptcy petition may be the answer for you.
Chapter 7 Bankruptcy
When you file your bankruptcy petition, a stay is put on all collection action. This means creditors, including your mortgage holder, cannot call you or take any measure to collect the debt. This means the foreclosure process will be temporarily stopped.
A mortgage is a debt secured by your home, so back mortgage payments are not discharged in a Chapter 7 bankruptcy. In some cases, when debtors are relieved of other financial obligations, they will have enough money to make their mortgage payments and may be able to negotiate with the lender to reinstate the loan.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy provides you real hope of saving your home. As with Chapter 7, collection action must stop the day you file your bankruptcy petition. Along with your petition, you present the court with a payback plan. As part of your plan to save your home, you add the amount in arrears to your payback plan. Payback plans generally require payments over the next three to five years. The amount of time you have to repay depends on the amount of your debt and your income.
For your plan to be accepted, you need to have enough income to make your mortgage payments every month as well as enough money to meet your regular monthly expenses. At the same time, you must make the payment to the trustee on time every month and the trustee then pays your debtors. If you comply with all the terms, at the end of the repayment period, you will have saved your home from foreclosure.
Also at the end of the repayment term, you will continue paying your mortgage according to the original terms. Some debts you may not have been required to pay in full, like credit card debts and medical bills. If you have complied with all the terms of the repayment plan, the remainder of those debts will be discharged.
If you are considering bankruptcy, contact one of our attorneys at Brock & Stout for a free case evaluation.