A lot of Americans are now falling behind paying their mortgages and while some lending companies may be willing to make a short sale or a loan modification plan, most lenders do not offer these quick fixes and for this reason, the lender is forced to begin the foreclosure process which is usually stipulated on the signed mortgage contract. The process of foreclosure usually involves the creditor repossessing and selling the property for public auction. The proceeds then are used to repay the mortgage and other legal costs that were made for the property.
The process of foreclosure usually takes a lot of time and most creditors do not usually commence foreclosure unless the lender is behind paying their mortgage for about three to six months. This is important so that the homeowners can decide if he or she will go for foreclosure or not or seek other alternatives which include loan forbearance or short sale.
How can you delay foreclosure through automatic stay?
Bankruptcy as well as foreclosure is the two words a problematic homeowner wants to hear. However, these words should not be dreaded about since it can help you keep your house in the process.
As soon as you file for either Chapter 7 or 13 bankruptcies, the court usually gives an Order of Relief and this grants you an automatic stay. An automatic stay directs your creditors to stop any collection attempts while the bankruptcy proceedings are underway. This means that if a foreclosure sale has been scheduled, then it will be postponed until the entire proceedings are through which will take about three to four months.
There are, however, two exceptions to this rule and these are:
If the lender opts to lift the automatic stay. It is true that the homeowner is protected through the automatic stay but the thing here is that the lender can also file a motion to lift the automatic stay and if this is granted, you will not be able to receive the extra time that you need to keep your property to yourself.
If the foreclosure notice has been filed already before the motion for automatic stay. There are states that require the lender to automatically give homeowners a notice before their properties will be sold. If the notice has already been served, then the automatic stay does not have the power to stop the notice. For example in California, a law stipulates that the lender give at least three months notice before the bankruptcy can be filed.
How Chapter 13 Bankruptcy Can You Help You?
What does the bankruptcy and foreclosure indicates under Chapter 13? Chapter 13 is very convenient as it allows you to establish another repayment plan for a specified time duration. However, before you are legible for Chapter 13, it is important that you have enough income to pay your past debts and if you do, then you will be able to avoid foreclosure and keep your home for good.
Know your 2nd and 3rd mortgage payments: Chapter 13 can help you to eliminate your 2nd and 3rd mortgage payments. Under Chapter 13, the bankruptcy court categorizes again, the mortgage as part of the unsecured debt and as stipulated under this type of bankruptcy, an unsecured debt is the last priority and will be eventually nullified in the process. This process is possible if and only if your first mortgage is secured and that there is no remaining equity in your home in order to secure the other mortgages.
How Chapter 7 Can Help You?
Chapter 7 bankruptcy helps by cancelling your debt which was secured by your home and this includes the mortgage as well as home equity loans. However, this takes a step further as the bankruptcy law was changed and according to the new law, Chapter 7 forgives the homeowner for any tax liability losses on the mortgage that is incurred by the homeowner. The tax law, however, is only applicable to 2007 to 2009 tax years. Unfortunately, the new law does not have the power to cancel the tax liability of the homeowner if the loan that was made is not mortgaged or used in no relation to home improvements such as loans made to pay for car purchase or vacation. The mortgage is secured by property which is your principal residence.
Things to Be Cautious About Chapter 7
There Is No Guarantee That You Will Keep Your Home: Even though your debt can be forgiven under this bankruptcy proceeding, it does not assure you that you can keep your home. The thing here is that you agree to make your home as your collateral as soon as you enter mortgage just in case you default on your monthly payments. While Chapter 13 will allow you to suspend foreclosure on your property and rethink of a repayment plan to pay your debts, Chapter 7 does not have the power to lift the lien thus you cannot evade having your home in foreclosure.
You Can Lose Some Of Your Possessions: Since the bankruptcy court want to help the creditors make up for their losses, the bankruptcy trustee can be awarded with money generated from the sale of your other possessions. These possessions include jewelry and it is very likely that you will lose your wedding ring if your debt is insurmountable.
Your legibility Might Be In Question: It was stated in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that anyone who has a gross income for the previous six months that exceeds the state median income is ineligible to file for Chapter 7 bankruptcy. If your income is enough for you to pay your debt, then you are legible to file for Chapter 13 instead of Chapter 7.
How Can Bankruptcy Affect Your Credit Score?
It is a known fact that bankruptcy as well as foreclosure can gravely affect your credit score. However, in most case, filing for bankruptcy is still a wise option if you want to rebuild your credit. Foreclosure can damage your credit score but it can also leave you a lot of mortgage debt. The thing here is that mortgage creditors will not consider you if you have a pending foreclosure on your credit history. You can be saved from all of this by filing for bankruptcy. Bankruptcy still causes damage to your credit but since it absolves all of your debts, you can rebuild it anytime.
While there are a few negative impacts of bankruptcy and it might not save you from losing your property, it is still the best option to get back on to your feet.
Losing Your House and Still Suffering From Debt
We have come to realize that bankruptcy may not protect you from losing your home thus you end up thinking that filing for it is very pointless. However, there are benefits that you can get out of filing for it.
Even though you cannot keep your home, filing for bankruptcy can help you solve your problem from being buried alive under your mortgage debts and also your tax liabilities and thus helping you to get back on to your feet.