On paper, you wouldn't want to declare bankruptcy. But what if it meant protecting your assets?
What if filing for bankruptcy could help you keep your home in the event of foreclosure?
It may sound like a stretch, but if you've fallen behind on your mortgage payments, bankruptcy can offer protection from foreclosure. Foreclosure, if you're unfamiliar with the term, involves the creditor repossessing your property after several months of missed payments, and then selling it at a public auction to repay the mortgage and cover any legal fees incurred in the process. Note that under the Dodd-Frank Consumer Protection Act, the lender must wait until the mortgage is 120 days overdue to foreclose on your home. In Iowa, most foreclosures are judicial in nature and go through the court system.
For the general public, it isn't entirely clear how bankruptcy can lessen the blow of foreclosure. So, to offer a legal take on the matter, let's explore a concept called the “automatic stay.”
What Is The Automatic Stay And How Can I Benefit?
File for bankruptcy, and the automatic stay will immediately go into effect. It will instantly, albeit temporarily, stop creditors and collection agencies from taking action against your property. If you are facing foreclosure, this option is certainly available to you, but it's important to recognize that it won't offer permanent protection. In simple terms, if you can't recover within 30 days of filing for bankruptcy, the creditor will be able to move forward with the foreclosure.
And there are exceptions to the automatic stay — specifically for serial debtors. Repeat debtors may not apply if less than a year has passed since prior bankruptcy proceedings have been dismissed. Other exceptions include if a repeat debtor initially files under or if the court determines the consumer's income is too high to qualify for a Chapter 7 bankruptcy. A third exception is if a repeat debtor refiles for bankruptcy under Chapter 13.
Consumers can appeal these exceptions by providing sound evidence that they did not act in poor faith by filing for bankruptcy on multiple occasions. They must prove, however, that extenuating circumstances were at play.
Should I File For Chapter 7 Or Chapter 13 Bankruptcy To Prevent Foreclosure?
When it comes to declaring bankruptcy, Chapter 13 is preferable to Chapter 7 if your intent is to prevent foreclosure. While Chapter 7 eliminates your personal liability and debt, it does not get rid of the lien — meaning you still risk losing the right to your home. This is because your property is perceived as collateral for the loan you received from the creditor.
That said, Chapter 7 can help with the following:
- It can help the consumer save money by allowing them to live in their home for free while their bankruptcy is pending.
- It will eliminate the consumer's debt secured by the home, including home equity loans and mortgages.
- It may relieve the consumer from certain tax liabilities, although there are exceptions here. Consult with a professional for more information.
So How Can Chapter 13 Bankruptcy Help Me Keep My Home?
The answer is quite simple, but it involves more than a free pass.
To keep your home after filing for Chapter 13 bankruptcy, you must continue to pay off your mortgage during and after the bankruptcy case. You will come up with a repayment plan, and pay off the arrearage, or late mortgage payments that have yet to be made, over the next three to five years. Then, if you keep current on your mortgage and fund all the past-due payments from before you filed for Chapter 13 bankruptcy, you will be able to keep your home.
For more information on How Bankruptcy Can Help With Foreclosure, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (515) 451-1260 today.
This is just general information and is not intended as legal advice. Everyone's situation is different and one should contact competent counsel about their specific legal issue!
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