Filing for Bankruptcy to Prevent Foreclosure

During these tough financial times, perhaps you’ve found yourself in debt. It’s possible you’ve borrowed against your house to pay off some of those debts and are now falling behind on your mortgage payments.

If you’re facing the daunting possibility of losing your home, filing for bankruptcy to prevent foreclosure is an excellent option to consider.

Discussing your situation with a seasoned bankruptcy attorney experienced in bankruptcy litigation is the ideal place to start. He or she can advise you on the best course of action as well as what options are available to you.

Avoiding Foreclosure

Even if the foreclosure process has begun, you may still be able to halt it. Paying the overdue amount (along with the fees) can stop foreclosure and reinstate your loan. Yet, if you’re struggling financially, this may not an option.

You may also be able to negotiate with the lender to see if they are willing to modify loan terms or possibly create repayment plans. This may not be realistic though.

This is where filing for Chapter 13 bankruptcy comes into play.

Are You Still Within the Window?

Acting promptly will give you the best chance to save your home from foreclosure. There’s a structured timeline for foreclosure in Michigan which consists of several key stages.

After four consecutive missed payments – which equals approximately 120 days of delinquency – lenders issue a formal notice of default that notifies the homeowner of foreclosure risk.

Following the notice, there is a phase of pre-foreclosure where the homeowner can explore the above-mentioned options to resolve their delinquency. If this can’t be resolved, there is what’s called the sheriff’s sale. At this point, the property is auctioned to the highest bidder. This is the official initiation of the foreclosure process.

The sheriff’s sale is followed by the redemption period which, in Michigan, is a six-month period where the homeowner can reclaim their property by paying the full amount owed.

If you have not reached the end of the redemption period, there may still be time to stop foreclosure. But you can stop it even earlier by filing for Chapter 13 bankruptcy.

Filing for Bankruptcy to Prevent Foreclosure

When you file for either Chapter 7 or Chapter 13 bankruptcy an automatic stay goes into effect that stops creditors from collecting on your debts. This includes your mortgage lender.

Although Chapter 7 bankruptcy is the most common bankruptcy filing, it’s rarely advised for people facing foreclosure because this form of bankruptcy is a liquidation, and you may lose your home in that liquidation.

By contrast, if you meet the requirements of Chapter 13 under the bankruptcy code, the bankruptcy court will work with you to reorganize your debts and create a manageable repayment plan. You’ll then be responsible to make these payments for three to five years.

Through this reorganization, you may be able to discharge certain unsecured debts like credit card debt and medical bills, as well as junior mortgages that have been re-categorized, in some cases, as unsecured debt.

The hope is that reducing or removing these debts will free up more of your disposable income over the next 3-5 years so you are able to meet your mortgage payments while providing a plan for reconciling any missed payments. In a nutshell, Chapter 13 gives you the time and the means to prevent and even stop foreclosure.

Move Quickly to Keep Your Home

Foreclosure can feel frightening, but you DO have options.

If paying off your balance in full or negotiating with your lender is no longer feasible, it’s important you act quickly by reaching out to highly experienced bankruptcy attorneys to file for Chapter 13 bankruptcy.

The attorneys at Gold, Lange, Majoros, and Smalarz are particularly adept at filing Chapter 13 bankruptcy to stop the foreclosure process and keep you in your home. So contact us today to get started.