No one typically purchases a home expecting that one day the lender on the mortgage will take the property away from them. Unfortunately, even buyers who have high FICO scores and who have plenty of income to support all their expenses when they buy a home can fall unexpectedly on hard times.
Job loss, serious illness, death of a primary earner in the family and other things can contribute to a sudden and drastic decline in income. This can leave a family with an inability to pay all of their bills, including the mortgage. When a bank or mortgage servicer does not receive its monthly payments it can foreclose and take the home back.
There are effective ways to stop a foreclosure action. The easiest way is to reinstate the past due balance and pay the mortgage up. Unfortunately, for any person who has experienced a financial hardship, this may not be possible.
Make contact with your lender or servicer the moment you begin having difficulty making a mortgage payment. There may be foreclosure retention options available that your lender will offer you to keep the home, such as modifying the mortgage to more affordable terms.
If, however, you are unable to resolve things and more than three months pass, it is likely you will be sent a document in the mail called a Notice of Default. This is the official first step to a lender foreclosing on a home in both judicial and non-judicial foreclosure states.
This is the time you should contact a bankruptcy lawyer for help. You will have two choices for filing for bankruptcy to save a home. They are Chapter 7 or Chapter 13 cases.
A Chapter 13 is the most suitable to file in order to stop a foreclosure proceeding. A Chapter 7 can also stop the proceeding, but a lender is able to file what is known as a Motion to Vacate The Automatic Stay and get a judge's permission to continue taking back the home. An attorney can explain what an Automatic Stay is more clearly, but it is what happens when a person files a bankruptcy. His or her creditors are automatically stopped or “stayed” from pursuing collections activity against them. This includes foreclosing.
To file a Chapter 13 or a 7, a Bankruptcy Petition must be filed first with the courts. The most important thing to bear in mind is that even if your home has reached the point where a Sheriff's Sale or auction is scheduled, a bankruptcy petition can be filed just before this happens to stop the foreclosure. The problem is that if you have to file a Chapter 7, your foreclosure action is only held off until the lender files for relief from the stay.
You may still use a bankruptcy Chapter 7 to be relieved of other debts such as credit card bills. It may also be used as a tactic to stall the foreclosure sale, so you can either go to sell the property yourself or find another alternative to help you out in your situation.
A Chapter 13 holds off a foreclosure for as long as the bankruptcy is active. Typically, a Chapter 13 case lasts 60 months. You reorganize all of your debts, including past due sums on your mortgage, within the Chapter 13 plan. This is something all of your creditors including your mortgage holder officially agree to and thereby, you avoid foreclosure.
You pay off your arrears within the Chapter 13 plan while resuming making regular mortgage payments within the plan. When your plan is complete, the bankruptcy is dismissed and you have saved your home.