How Does Bankruptcy Protect My House?

As coronavirus mortgage relief programs expire, the predicted wave of foreclosures is washing ashore. The September 2021 foreclosure rate was more than twice as high as the September 2020 foreclosure rate. This drastic increase probably means that banks are quickly addressing delinquent accounts. Usually, that process involves sending bills to owners that they cannot possibly pay.

As outlined below, a Chicago bankruptcy attorney can stop the foreclosure process in its tracks. The amount of delinquency is usually irrelevant. Furthermore, a Chicago bankruptcy attorney can unlock some advanced features which make your house more affordable in the long term. Other benefits of bankruptcy include unsecured debt discharge and additional property protections.

Stopping Foreclosure

Civil judges have the power to stop wrongful foreclosure in some situations. However, these plaintiffs must normally prove lender negligence or fraud.

Section 362 of the Bankruptcy Code is different. It automatically takes effect as soon as debtors file their voluntary petitions. This provision applies to most creditor adverse actions, such as:

• Foreclosure,
• Wage garnishment,
• Eviction,
• Creditor harassment, and
• Repossession.

In a Chapter 13 bankruptcy, the Automatic Stay usually lasts five years. During these sixty months, debtors gradually repay mortgage arrears and other delinquent secured debts. If the bank tries to resume foreclosure proceedings, or even if it contacts the debtor about the amount due, it must face the wrath of a federal judge.

The Automatic Stay applies even if the bank has sent an acceleration notice or has scheduled a foreclosure sale.

Generally, foreclosures are rather easy to stop with bankruptcy. But they are almost impossible to undo in any scenario. Indiana is a judicial foreclosure state. The bank can begin foreclosure proceedings after just one missed payment, provided no other program, like a mortgage deferral, applies.

So, if you are more than one payment behind, you should seriously consider filing bankruptcy before the lender takes adverse action.

Dispute Mediation

Speaking of mortgage relief programs, a number of mortgage modification programs could be available. Some FHA and VA borrowers are eligible for modification. So are some Fannie Mae or Freddie Mac borrowers.

Although relief is available, banks are reluctant to grant it. They often use technicalities to deny applications. Examples include a trial payment which was one day too late or a DTI (debt-to-income) ratio which is a little too high.

Filing bankruptcy cures this problem. If a dispute arises over something like modification eligibility, the judge usually refers the matter to mediation. During mediation, both sides have a duty to negotiate in good faith. They must work to settle the dispute instead of merely going through the motions. As part of the process, both sides must be willing to make some compromises.

A flat denial is not a good faith negotiating position. Usually, the bank must be willing to overlook some minor technical issues and get to the heart of the matter.

Discharge Options

As mentioned, unsecured debts are usually dischargeable in bankruptcy. Although home loans are normally secured debts, the discharge option could still apply.

Assume Ali used 80/20 financing to buy a $1 million home. He has an $800,000 loan and a $200,000 loan. If his home’s value has dropped to $900,000, that value isn’t high enough to fully secure both loans. A judge could declare that half the junior loan is a dischargeable, unsecured debt. That reclassification could save Ali thousands of dollars over each of the next several years.

Lien stripping is quite complex. Only a very experienced Chicago bankruptcy attorney should handle such a matter.

Contact Dedicated Cook County Lawyers

No matter what kind of financial problem you are having, bankruptcy could be a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Virtual, home, and after-hours visits are available.

Resource:

prnewswire.com/news-releases/q3-2021-us-foreclosure-activity-begins-to-see-significant-increases-as-foreclosure-moratorium-is-lifted-301399980.html