Foreclosure is usually set into motion when a homeowner is 3 or 4 months behind on their mortgage payment. The bank will notify the borrower of impending foreclosure, declaring their intentions of seizing control of the property and selling it at auction to try and recoup some of their losses. Once foreclosure proceedings have begun, a borrower is obligated to pay off the entire balance of the mortgage (not a likely option) or risk losing the home. Filing for bankruptcy puts a stop to foreclosure proceedings and gives the homeowner some additional options.
How Does Chapter 13 Help?
Chapter 13 bankruptcy is the best option for homeowners who are hoping to keep their home. This type of bankruptcy will take the delinquent mortgage payments and interest owed and spread them out over a longer period of time (usually 5 years) for repayment. If the homeowner has enough income to make the regular mortgage payment and pay back the past due amount during this time, they will get to keep their home.
If the home has 2nd or 3rd mortgages and has decreased in value, these mortgages may be converted to unsecured debt in Chapter 13 and the homeowner may no longer be responsible for repayment of them. This means the homeowner will keep their home, decrease their mortgage debt, and decrease their monthly payments, as long as they keep their end of the agreement laid out in bankruptcy proceedings. (Learn more about lien stripping.)
How Does Chapter 7 Help?
Chapter 7 bankruptcy is the option for people who can not afford to pay back any of their debts. Chapter 7 bankruptcy does not usually include the option for homeowners to reaffirm their mortgage and stay in their home on a permanent basis. The borrower will be released from their obligation for repayment, but the bank will still be allowed to seize the property in order to recoup their losses.
However, filing for Chapter 7 bankruptcy will still put an automatic stay on debt collection and temporarily stalls foreclosure proceedings, usually for around 3 months. This will give the homeowner some time to save up some money to secure a new place to live. This will also release the homeowner from any residual balance that would normally be due if the home sells for less than the amount of the mortgage at auction. The borrower will not be able to keep their home, but they will be released from any financial responsibility for it and be able to start fresh.
Once you file for bankruptcy and the automatic stay is put in place, the bank may file for a motion to lift the stay so they can continue foreclosure proceedings. This can usually be accomplished within 2 to 3 months. Working with an experienced Utah bankruptcy attorney will help you to avoid situations like these and be sure that all of your bankruptcy proceedings are handled before foreclosure proceedings can resume.