How Can Bankruptcy Protect My House?
According to the Federal Housing Finance Administration, 2.7 million homeowners are in COVID-19 mortgage deferral status. Many of these families have deferred payments for more than a year. When the deferral ends, these banks will most likely demand prompt payment. Families which barely made it through the coronavirus downturn will be hard-pressed to make such a huge payment, even if the bank gives them a few months to come up with the money.
A Chicago bankruptcy attorney can use federal law to put the brakes on foreclosure, prevent creditors from seizing your house, put you on an income-based repayment plan, and possibly reduce your monthly payments. That’s a powerful combination which is usually unavailable anywhere else.
Automatic Stay
The moment debtors file their voluntary petitions, Section 362 of the Bankruptcy Code usually takes full effect. This provision immediately halts most kinds of adverse creditor actions, such as:
- Foreclosure,
- Wage garnishment,
- Repossession,
- Lien placement,
- Eviction, and
- Creditor lawsuits.
The foreclosure process is very trying for most homeowners. Although the sale itself might not happen for several months, the bank usually accelerates the loan, demanding immediate payment of the entire Unpaid Principal Balance (UPB), after one or two missed payments. Once that happens, the bank stops accepting partial payments. So, with each passing month, distressed homeowners get into deeper financial holes.
In some cases, typically if the debtor has declared bankruptcy in the last six months, the Automatic Stay has a more limited effect.
The Automatic Stay usually remains in effect until the judge closes the Chapter 13. That could be up to five years from the filing date. So, these debtors have 60 months to gradually erase mortgage delinquency by making a monthly debt consolidation payment.
Property Exemption
Technically, the bankruptcy trustee (person who oversees the case for the judge) can seize nonexempt property and sell it to pay your creditors. However, most Indianans don’t have nonexempt property. State and federal laws protect your:
- House,
- Government benefits,
- Car,
- Retirement account, and
- Personal property.
Certain informal exemptions, like the best interest of creditors rule, provide additional protection. For example, if Tom’s house is worth $200,000 and you owe $200,000, a seizure would not be in the creditors’ best interests. Financially, they would get little or nothing off this deal.
Advanced Options
Now we’re getting to the really good part. As mentioned, bankruptcy doesn’t just keep you in your house. In many cases, bankruptcy makes house payments more affordable. Lien stripping is a good example.
Assume Lisa owes $150,000 on a house that’s worth $150,000. She also has a $40,000 HELOC (Home Equity Line of Credit). Since Lisa’s house is not valuable enough to secure both liens, a judge could re-label her HELOC as an unsecured debt. Since most unsecured debts are dischargeable in a Chapter 13, Lisa might not have to repay the HELOC. That change could save her hundreds of dollars a month.
Other advanced options are available as well. Only the best Chicago bankruptcy lawyers know they’re available and know how to unlock them.
Connect with Diligent Lawyers
Chapter 13 keeps creditors at bay and results in a fresh start. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.
Resource:
forbes.com/advisor/mortgages/coronavirus-mortgage-forbearances-expire-march-2021/
