When many people hear the word bankruptcy, the first thing they think of is fear and despair. While the aftermath of bankruptcy will result in a period of change, it doesn’t have to be synonymous with fear. Filing for bankruptcy in certain situations can just as easily be seen as a path to a fresh start. Whether it’s a mortgage, car payment, student loan or credit card, most of us live with some form of debt all the time. Debts can become untenable for a variety of different reasons such as a lost job, divorce or medical disability. Strategically filing bankruptcy can provide you and your family with a way to be released from these debts and have a chance to start over.
Who Can File for Bankruptcy?
Both individuals and companies can file for bankruptcy protection, depending upon their particular circumstances. Individual’s income and asset records must be evaluated in order to determine if they are eligible to file for bankruptcy. The requirements necessary to be eligible vary according to the type of bankruptcy protection you are pursuing.
Types of Bankruptcy
The two most common types of bankruptcy for individuals are Chapter 7 and Chapter 13. Chapter 7 results in the sale of the debtor’s assets in order to pay debts that they can’t afford. In Chapter 13 bankruptcy, the debtor must have sufficient income to cover the debts, which are reorganized as part of a single payment plan.
What Happens After Filing Bankruptcy?
Unsecured debts such as credit card debt are often discharged upon filing for bankruptcy protection. Once an individual has filed for bankruptcy with the court, all collection efforts on behalf of credits must immediately cease, and all issues relating to either the sale of assets or Chapter 13 payments are handled by a bankruptcy trustee appointed by the court. Debts that are court-mandated, such as alimony and child-support payments, and debts that are owed to the federal government such as tax liabilities and student loans are not eligible for discharge in bankruptcy cases. If you are overwhelmed by debt, under constant harassment from creditors, and looking for a way out of a seemingly hopeless situation, the first thing you should do is consult with a trusted bankruptcy law office.
Bankruptcy Strategies to Prevent Foreclosure
If you have an underwater mortgage and are struggling to overcome your mountain of debt, the threat of losing your home to foreclosure is a terrifying reality. Both you and your family could have to deal with the consequences. Fortunately, meeting with a bankruptcy attorney can provide you with the expertise to delay or even avoid foreclosure altogether. A bankruptcy attorney has a plethora of tools and strategies, all designed to help you get back on track with your mortgage payments.
How Bankruptcy Can Stall or Prevent Foreclosure
Essentially, when you’re behind on your mortgage payments and aren’t able to catch up, your lender tries to get the remaining payments through other means. Typically, your lender will start by auctioning off your home. Fortunately, the foreclosure process takes a long time, so if you’re having problems with your mortgage and foresee a foreclosure in the future, you may still have time to act. Filing for bankruptcy is one measure that you can take. Meeting with a bankruptcy attorney about your mortgage can help you understand your available options. Some options include:
Chapter 13: If you work with a bankruptcy attorney, you can include your past due mortgage payments in a Chapter 13 filing. You should fully disclose your financial situation, which will allow your bankruptcy attorney to determine whether Chapter 13 is plausible for you, and whether this option will be successful. If you can still make mortgage payments, but need to have the plan restructured in order to keep making payments, this option is for you.
Chapter 7: If restructuring your debt doesn’t change your mortgage situation, Chapter 7 is the right option for you. A bankruptcy attorney will help you work to avoid foreclosure with a Chapter 7 filing, which will discharge nearly all of the debts included in your bankruptcy a Chapter 7 filing can also include your primary mortgage. It’s important to note that bankruptcy doesn’t always succeed in preventing foreclosure on your home, but working with a bankruptcy attorney can vastly improve those chances.
Strategic Default and Strategic Foreclosure
Strategic default commonly refers to the practice of “walking away” from a mortgage. In this sense, borrowers simply stop paying, pack up, and move out, leaving the bank to foreclose on the home.
Strategic foreclosure is the practice of getting the bank to take back your home as full satisfaction of your debt. Regardless of what you may read on the Internet, strategic default is a bad idea for 99.9% of borrowers. In addition to the damage it will do to your credit, homeowners who simply “walk away” may be liable for a deficiency judgment against them. That deficiency is the difference between the value of the loan and what the property sold for at foreclosure. Since most people engaging in strategic default are also underwater on their mortgages, this is probably a hefty sum of money. In a strategic foreclosure, an underwater homeowner attempts to return the property to the bank this is commonly done in two ways: a deed-in-lieu of foreclosure and a consent foreclosure. A deed-in-lieu of foreclosure is used before foreclosure is filed. The bank agrees to take the property and to not pursue a deficiency judgment against the borrower. Some banks will want you to list the home for ninety days before they will accept a deed-in-lieu. If you have a second mortgage, it is unlikely that you will be able to obtain a deed-in-lieu. A consent foreclosure is done after the bank has filed a foreclosure action. This is basically the same as a deed-in-lieu, except that you are consenting to a judgment of foreclosure and sale being entered against you. This can impact your credit score, but you are also protected against a deficiency judgment. Either option is best done by a qualified attorney, but can be pursued on your own.
Can I File an Emergency Bankruptcy Petition to Stop a Foreclosure Sale?
If your mortgage lender is about to foreclose, filing an emergency bankruptcy petition (also called a bare-bones or skeleton petition) can delay or stop the foreclosure process. It could give you more time to negotiate with the bank. Keep in mind that while Chapter 7 will stop a foreclosure, it will be temporary. If you’d like to keep your home, Chapter 13 will likely be the better option.
Emergency Bankruptcy Petition
When you don’t have time to complete all required bankruptcy forms, you can take advantage of the automatic stay by filing an emergency bankruptcy petition. An emergency petition lets you file for bankruptcy by filling out a few forms and taking a credit counseling course. You then have 14 days to complete the rest of the required paperwork and file it with the court.
An Emergency Petition Can Stop a Foreclosure Sale
Many people want to stop a foreclosure on the eve of bankruptcy. An emergency petition can do just that. If you have more time, it’s a good idea to find out when you’ll need to file your bankruptcy petition. How quickly a lender can foreclose on your home depends on state law. If you received a foreclosure notice from the bank, you’d want to read it carefully to determine the date of your foreclosure (or trustee) sale. In most states, your lender must give you ample notice of your default and wait a certain statutory period before setting a foreclosure sale date. The moment you file for bankruptcy relief (including an emergency petition) an automatic stay goes into effect that prohibits your lender from going forward with the foreclosure sale. Bankruptcy can delay or stop the foreclosure process as long as the home hasn’t been sold. But once the lender sells your home, you no longer own it, and bankruptcy can’t help you.
How to File an Emergency Bankruptcy Petition
Call Ascent Law and We’ll help you file an emergency petition to stop a foreclosure so long as you qualify to file a bankruptcy case. In most cases, you can file an emergency bankruptcy petition by completing the following forms:
• Form 101 – Voluntary Petition for Individuals Filing for Bankruptcy
• Form 121 – Your Statement About Your Social Security Numbers
• the names and addresses of all of your creditors (the creditor mailing list or mailing matrix—check with your court for formatting requirements)
• a credit counseling certificate requirement or a waiver request, and
• a filing fee, a request for a fee waiver, or a request to pay the fee in installments.
Some courts might require additional forms. You’ll want to check with your local bankruptcy court to learn the requirements in your district. You can find it using the Federal Court Finder. The official bankruptcy forms are on the U.S. Courts bankruptcy form webpage. Again, after filing the emergency petition, you have 14 days to file the rest of the required bankruptcy forms and schedules. Failure to do so will typically result in the dismissal of your case without prejudice (you can file again right away).
First let’s take a look at some of the problems homeowners face when they decide to go through a strategic foreclosure:
• The number one problem that homeowners face when going through a strategic foreclosure is that mortgage lenders usually choose to pursue them relentlessly for payment. The fact is that mortgage lenders have the legal right to pursue the homeowner for the balance of the mortgage even after foreclosure and even if the home is valued for less than the mortgage, which is often the case.
• The second problem is that homeowners going through a strategic foreclosure often still have assets that they are trying to protect. But using the legal system, mortgage lenders can get access to those assets by winning a judgment against the debtor.
Filing bankruptcy will help the homeowner discharge the balance of the mortgage after foreclosure and protect their assets. Strategic foreclosure is not about getting away without paying your creditors; it is about realizing that you are up against the wall financially before you lose all of your assets; that is why they call it strategic. By getting out of the mortgage early, you are better positioned to protect critical assets and get a better financial fresh start after foreclosure and/or bankruptcy. Many people fall behind on their mortgage payments. Some lenders and mortgage companies may be willing to work out deals with the homeowners, such as a short sale or loan modification. Most lenders are not. In that case, the lender will most likely begin the foreclosure process, as set out in the mortgage contract. The foreclosure process involves the creditor repossessing and usually selling the house at a public auction. The proceeds from that auction are used to repay the mortgage and any legal costs. The foreclosure process takes time. Most creditors do not begin foreclosing until the homeowner is two to three months behind on their mortgage payments. This gives the homeowner some time to consider alternatives to foreclosure, such as a loan forbearance, short sale, or deed in lieu of foreclosure. Should all of these alternatives fail, bankruptcy may help in several different ways.
How to Delay Foreclosure with an Automatic Stay
Bankruptcy and foreclosure are both words that the average person dreads hearing. If you are facing foreclosure, however, bankruptcy can become a tool to help you keep your house. Once you file bankruptcy, either Chapter 13 or Chapter 7, the court automatically issues an Order for Relief. This order grants you an “automatic stay”, that directs your creditors to immediately cease their collection attempts, no matter what. So, if a foreclosure sale has been scheduled for your home, it will be postponed, by law, until the bankruptcy is finalized. This usually takes about three to four months.
There are two exceptions to this buying time rule:
• If the Lender Files a Motion to Lift the Stay: Unfortunately, the lender can file a motion to lift the stay, which asks permission from the bankruptcy court to continue with the foreclosure sale. If this is granted, you may not receive the extra three to four months of time. However, bankruptcy normally still postpones the sale by about two months or more, or even longer if the lender does not act fast in filing the motion to lift the stay.
• If the Foreclosure Notice has Already Been Filed: Most states have laws that require lenders to give homeowners a certain amount of notice before selling their property. A bankruptcy’s automatic stay will NOT stop the clock on this advance notice.
When you need bankruptcy to stop a foreclosure in Utah, please call Ascent Law LLC for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506