Talk to Bankruptcy Attorney: How to Avoid Foreclosure and How to Stop Foreclosure by Filing Chapter 13 Bankruptcy
When considering Chapter 13 Bankruptcy, the borrower needs to really understand their budget: income and true expenses, in order to determine if it is a wise financial decision to propose a viable Chapter 13 repayment plan. When mortgage payments greatly exceed average going rent and the house value greatly exceeds existing mortgage balances, it may not be financially wise to stay in the home. However, even if that is your conclusion you should understand the repercussions of foreclosure before rolling over and paying dead. A free consultation with a bankruptcy attorney can arm you with the information to make wise choices.
If the mortgage payments are realistic not just in terms of comparison to what else is out there but also because the household budget allows for them, a Chapter 13 could be the way to keep the home. This is particularly true when whatever caused the borrower to fall behind, whether it was a reduction or loss of income or an increase in expenses were simply temporary.
Why Chapter 13 and not Chapter 7?
Chapter 7 does not address any late mortgage payments, which means that after filing a Chapter 7 case, the homeowner will have to rely on the loan modification process to try and keep the home. Anyone looking at foreclosure, should definitely attempt a loan modification. However, if a loan modification is not approved, the lender may foreclose even while the Chapter 7 Bankruptcy case is open provided the lender files proper documents with the Court of course, or lender may simply wait until after the case closes, which typically is 90 days. Some borrowers choose Chapter 7 anyway and take their chances with a loan modification process. This is fine, as long as the risks are understood and accepted.
In a Chapter 13, the debtor resumes regular mortgage payments and proposes a 3 to 5 year repayment plan to bring the loan(s) current. Of course, the debtor must be able to afford such payments, hence again this works great when a decrease in the household income or some unusually high expenses were temporary and have since been rectified. Sometimes, borrowers will pick up an additional part time job, rent a room in the house for additional income, get an increase in child/alimony support, or receive some benefits that were initially wrongfully denied.
In addition, Chapter 13 offers one feature that Chapter 7 does not. That is ability to transform a second and/or third mortgage on a primary residence into unsecured debt. This means that after a successful completion of a Chapter 13 repayment plan, the second lender is removed from the Deed on the property, and any remaining balance on such loans is discharged. This is only possible under Chapter 13 and only if at the time of the filing of the case, the second loan was absolutely 100% unsecured, meaning the real estate is worth less than first mortgage balance. To do this, it may be necessary to obtain appraisal of the property, a motion must be filed with the court called a Lien Strip motion and the judge must approve the lien strip after hearing if the motion is opposed. Sometimes the lien strip is enough to bring the loans on the property and the value of the property close enough to each other so that keeping the home makes financial sense.
Kathryn U. Tokarska, Esq. is admitted to practice in State of California. Graduate of California Western School of Law in San Diego, California, Ms. Tokarska concentrated her legal studies in area of Bankruptcy, Estate Planning, Taxation, Securities Regulations, and Real Estate Finance. She has over fourteen years of experience working for major financial investment institutions, offering financial planning services, investment products, wealth building and preservation strategies. Ms. Tokarska holds a Financial Paraplanner certificate, was a licensed stockbroker, and is currently enrolled in an LL.M. in Bankruptcy/Finance at Thomas Jefferson School of Law.
For assistance, contact Tokarska Law Center online, by Emailing Us, or by phone (619) 285-1992. We are a FEDERAL DEBT RELIEF AGENCY. We help people file for Bankruptcy Protection under the Federal and State Laws.