Home ownership is difficult enough without the possibility of foreclosure. But, sadly, it can happen – even if you’ve avoided the pitfalls of the five most common reasons people file bankruptcy which share a lot in common with the reasons for foreclosure. Every year, many people across the country find themselves behind on their mortgage and have to go through the grueling prospect of losing their home.
If forbearance, a short sale or a loan modification isn’t in the cards (and these days, many banks won’t take these routes, opting to execute the foreclosure terms of the mortgage instead), you might want to consider filing for Bankruptcy. While it can be intimidating and while there are downsides, there are a couple of good reasons to consider it as an option if other solutions aren’t panning out the way you’d like.
Bankruptcy and Foreclosures Basics
The most compelling reason to look at bankruptcy as an option is that it gives you a better chance of keeping your house. If you let the foreclosure go through, you’re looking at the bank repossessing your home and selling it at the next public real estate auction. The way it does this is by forcing an Automatic Stay.
Automatic Stay Benefits
The Automatic Stay makes five key things possible:
It Can Stop the Threat of Eviction: So long as your landlord or lender has not filed a wrongful possession against you, this should stop an imminent foreclosure. How long the stay will keep this from happening can vary from either a few days or a few weeks.
Keeping the Lights On: Those who are already in foreclosure are often behind on utility bills – power, gas, electricity, septic, garbage collection still happen while a foreclosure is in process. The stay can keep utilities from being denied to you for a minimum of twenty days.
Stop Foreclosure Proceedings in Their Tracks: Most importantly, the stay from the Bankruptcy makes everything pause, even if only momentarily. Banks have ways to get around this eventually, but it poses another obstacle to them moving ahead with the sale of your home.
Prevents Wage Garnishing: It’s hard enough to pay your bills without the government or the bank dipping into your pockets without your consent. Automatic Stays prevent this and allow you to spend your money the way you need to while you work out your Bankruptcy filing.
Preventing Agencies in Government From Reversing Payments: This isn’t as large a benefit as the other four, but if the government has given you a monetary benefit – even if it’s more than what you were necessarily owed – the government can’t take it back while the stay is in place.
What Will the Automatic Stay Fail To Protect?
Relieve You From Tax Debts: Unfortunately, if part of your debts are tax-related, the stay does nothing. Uncle Sam and the local government still are due their share of any tax-related debts you’ve accrued – but as noted above, they can’t garner your wages for their repayment.
Loans Against Your Pension: This is not protected and will need to be repaid.
Criminal Fines: Much like taxes, any federal, state, or local fines remain on record and must be repaid.
Child Support/Alimony: Any lawsuit in progress or money owed to child support or alimony will also remain in place.
The Automatic Stay, even with its downsides, might sound pretty good. Mostly it is, but there are two things to consider before you consider Bankruptcy as a ward against foreclosure.
The first is that if you’ve filed for Bankruptcy in the past year, the odds are stacked against you. The length of the stay reduces to no more than thirty days if you have a prior filing. A month may sound like a long time, but in foreclosure proceedings, it really isn’t. The gears of finance grind slow, and creditors can often wait you out if you’re fumbling through a Bankruptcy on your own.
The second is that lenders are rather good at finding clever ways around an Automatic Stay. There are too many ways they can get around it to enumerate, and all they have to do is have the right piece of evidence to present a court with to lift an automatic stay. Their lawyers will be practiced at this, so it won’t take long for them to find a loophole.
So, You Qualify For Bankruptcy: Which Type Is Best For You?
There are two primary forms of Bankruptcy you can file for:
Chapter 7 Bankruptcy: This is the option often used by those with little to no realistic options to repay their debt over a reasonable amount of time. Chapter 7 Bankruptcy will clear your slate of the debts owed, with the exception of most types of debts not covered by the Automatic Stay. Ultimately, this isn’t going to save your house, but it will give you enough time to work out your next steps in the foreclosure without constant harassment by creditors, utility companies, or collectors.
Chapter 13 Bankruptcy: This option has more long-term benefits, the primary one being that you have a much better chance of retaining your home. In the face of foreclosure, Chapter 13 offers much more, especially if you have recently lost your primary form of income, or have lower credit than you would like.
How Can I Move Forward if My House is Repossessed?
Losing your home is always a reality in either a foreclosure or a bankruptcy. Many people will agonize over the fallout. In addition to a credit score dip, many wonder how they’re ever going to find a place to live once everything is over. The good news is that it’s not hopeless.
While bad credit is certainly not helpful, you have a good chance at being able to find a home, particularly if you’re looking to rent rather than to own. If you’re determined to own a home, there’s always the Federal Housing Authority. We wrote a previous article dedicated to housing options post-bankruptcy, so feel free to go through it more in depth. It offers good tips on working through to a new home in the future. Maybe even a better one.
What Do I Need To Do in the Present?
If you’ve tried other options and are ready to file for Bankruptcy, it’s important to do three things:
Do Not Delay: Once you’ve personally assessed your need for a Bankruptcy filing, it’s time to act. The banks don’t wait long to move forward if they feel your debt is at risk of not being repaid. So act before they can.
Enroll In Credit Counselling: Part of filing for bankruptcy is showing that you’ve received professional advice from financial advisors on how to ameliorate your debt situation and tighten your budget. You need to do this before you can even file, and as noted earlier, the banks won’t wait.
Find an Experienced Bankruptcy Lawyer: The offices of Cibik & Cataldo, P.C. have been assisting Philadelphians with their bankruptcy proceedings for over thirty years. They are dedicated to addressing your individual needs with compassion and diligence in order to put you back on the road to financial well-being. Please feel free to call us at 215-735-1060 or visit our website for a free consultation.
We are a debt relief agency that helps people
seek bankruptcy protection under federal law