Do you know you can “use” Chapter 13 bankruptcy to stop foreclosure? If you are planning to file for bankruptcy but are also facing foreclosure, the timing of your bankruptcy can make a world of difference, of course, depending on what you intend to do with your home. It depends on your goals. For some, it’s better to let the foreclosure happen and then file for bankruptcy. In other cases, we advise filing for bankruptcy first, before the foreclosure.
Filing for bankruptcy Before the Foreclosure
If you are in foreclosure, there is a high chance you will want a loan modification or something similar. By filing for bankruptcy early in the process, the automatic stay will stop the foreclosure process (temporarily). The foreclosure process will restart when your bankruptcy is over, and the court discharges the debts. This buys you some time to negotiate a loan modification before the foreclosure process is done.
This process can also buy you more time in the house, and if that’s the case, the automatic stay will prevent the foreclosure from going forward. This can add more time for the lender to sell the property.
If you Are Considering filing for Chapter 13 Bankruptcy, you may be able to pay off your late mortgage payments throughout the repayment plan. At the end of your plan, you will be left with your regular mortgage.
Filing for bankruptcy After the Foreclosure
Many state laws allow a debtor to keep personal property if the debtor does not own a home. By filing for bankruptcy after the foreclosure, you might be able to keep the property you would lose otherwise.
Suppose the main reason you are filing for bankruptcy is to avoid a mortgage deficiency balance. In that case, you should know that even without a bankruptcy, you still might be able to avoid liability for a deficiency. You can check the most common situations where borrowers who are foreclosed do not owe a deficiency:
- Some state laws will not allow a mortgage lender to sue former homeowners for a deficiency.
- Many lenders will waive a deficiency, especially if you apply for a short sale.
- Many lenders won’t collect it.
If filing for bankruptcy is your last resource, if you have no other choice, or because of other lawsuits or financial threats, you should file for bankruptcy immediately. You should always consider the whole financial scenario before filing for bankruptcy. Contact a Dallas bankruptcy attorney to find out the best options for your situation.