How Does Filing Bankruptcy Affect My House?
In most cases, lenders may begin pre-foreclosure proceedings after just one missed payment. Additionally, in 2019’s Obduskey v. McCarthy & Holthus LLP, the United States Supreme Court gutted a key foreclosure prevention provision in the Fair Debt Collection Practice Act. So, many lenders are more aggressive than ever.
In this environment, Chapter 13 bankruptcy may be the best way to prevent foreclosure in the short term and also make your house more affordable in the long term.
Bankruptcy’s Automatic Stay
Section 362 of the Bankruptcy Code prohibits all manner of adverse actions, including things like:
- – Repossession,
- – Foreclosure,
- – Wage garnishment,
- – Harassing phone calls, and
- – Collection lawsuits.
In most cases, the Automatic Stay is, well, automatic. Debtors need not prove fraud, negligence, or anything else. Simply filing a voluntary bankruptcy petition usually invokes the stay.
As mentioned, the Supreme Court has watered down some key provisions of the Fair Debt Collection Practices Act. But the Automatic Stay remains as strong as ever. Lenders may only bypass Section 362 if the judge grants special permission. Generally, Indiana bankruptcy judges only grant this permission if the debtor threatens the collateral (e.g. “I’m going to burn the house down”).
Moreover, the lender can do nothing until after a hearing, where the judge listens carefully to evidence from both sides.
Protected Repayment Period
Typically, the Automatic Stay remains in effect as long as the bankruptcy is pending. In a Chapter 13, that could be up to five years. This sixty-month protected repayment period gives debtors plenty of time to make catch-up payments on a past-due mortgage.
These catch-up payments are based on the debtor’s monthly disposable income. In most cases, as long as the proposed monthly debt consolidation payment retires all secured debt delinquency within the protected repayment period, creditors cannot challenge the plan. They must wait for their money like everyone else.
At the end of the protected repayment period, the debtor has a zero past-due mortgage balance. That’s the epitome of a fresh financial start, which is what the Bankruptcy Code guarantees.
Home Affordability Options
Chapter 13 does more than prevent foreclosure and give homeowners the breathing room they need to catch up on payments. In many cases, bankruptcy also makes your Indiana home more affordable in the long term.
Many times, there is some evidence of mortgage fraud. Even a scintilla (tiny shred) of evidence is probably enough to trigger the bankruptcy mediation requirement. During mediation, a Chapter 13 attorney is often able to obtain a loan modification or other relief.
Moreover, the lien stripping option may be available. Assume Sarah has a $200,000 mortgage and a $20,000 HELOC (Home Equity Line of Credit), or a second mortgage. If Sarah’s house is only worth $200,000, a bankruptcy judge may declare that her $20,000 HELOC is an unsecured debt, since the home value is not high enough to secure both obligations.
In that case, the judge may discharge the HELOC along with Sarah’s credit cards, medical bills, and other unsecured debt. That finding could save her thousands of dollars a year.
Count on Experienced Lawyers
Bankruptcy may help you and your family stay in your home. For a free consultation with an experienced Chicago Chapter 13 bankruptcy attorney, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Indiana and Illinois.
Resource:
consumerfinance.gov/ask-cfpb/i-cant-make-my-mortgage-payments-how-long-will-it-take-before-ill-face-foreclosure-en-1849/
/would-filing-bankruptcy-void-my-security-clearance/
