Bankruptcy And Foreclosure
This topic came up in another string and I didn't realize this was the case and why. I hope I'm keeping this straight. Can someon explain?
Apparently when you file bankruptcy you only delay the foreclosure if you are not able to continue making payments on your mortgage after discharge of the bankruptcy. Is this because bankruptcy only discharges the "missed" payments you owe the bank?
As in, you have a 200K house, owe 175K and have missed payments for several months, let's say 10K. So the bankruptcy discharges the 10K but you still owe the 175K on the loan. Is this how it works?
Just trying to understand how to get rid of that argument sellers sometimes try to use as to their other options. If it works as per above it sounds like a really bad option unless they are 110% sure they'll be able to make payments after the discharge. Otherwise you get the double wammy on your credit rating and still lose the house.... 
There are many different chapters in the US Bankruptcy Code. The most common that address homeowners are Chapters 7, and 13.
Homeowners can keep their home under both plans.
Pick up a primer on bankruptcy. Learn the differences between a 7, and a 13, and the difference between the terms dismissed, and discharged.
Check out 'automatic stay', too.
Quote:
On 2004-02-19 10:08, TheShortSalePro wrote:
There are many different chapters in the US Bankruptcy Code. The most common that address homeowners are Chapters 7, and 13.
Homeowners can keep their home under both plans.
Pick up a primer on bankruptcy. Learn the differences between a 7, and a 13, and the difference between the terms dismissed, and discharged.
Check out 'automatic stay', too.
I am curious about the homeowner being able to keep the house under a chapter 7.
If there is a low homestead exemption and considerable equity why wouldn't the trustee sell the house to pay off the debtors?
Or if the there is no equity that the trustee would realize from a sale of the property. As far as I know the trustee would abandon the property and the lenders could begin foreclosure again.
I would appreciate any more details on the subject.
Tom[ Edited by tbelknap on Date 02/20/2004 ]
Well I've been doing some reading....as I understand it - the less equity you have in the home the better for you
This is specific to CH 7 - I haven't gotten to CH 13 stuff yet
Only property that is of inconsequential value or burdensome to the estate is abandoned
If you have considerable equity in the home it comes down to how much your state will exempt. Some states allow full exemption of your primary residence. Others have a limit and if the value of the home, after deducting the mortgage and any other liens is higher than that the trustee will sell it.
So once again - you have to become familiar with your local laws
I do foreclosure consulting for a living. When you file bankruptcy the Federal Court takes precedence over the State court and orders the stay to stop the State allowed foreclosure until a determination is made by the Federal Bankruptcy Court. The Trustee sets up a forced workout plan and you make payments on the arrearage to the Trustee. This includes the missed payments, outstanding late fees, legal fees and accrued interest.
You must continue making your regular monthly mortgage payments in addition to the Trustee payments. If you miss either of these they will petition the Court for a Motion for Relief from the stay and proceed with the foreclosure. It doesn't matter what kind of equity position you are in even it is over leveraged.
The other donwside is that after 6-8 months and you continued to make both payments, they can still exercise their acceleration clause which calls for the balance of the mortgage to be paid in full immediately. This usually depends on what mortage company you are dealing with.
In the meantime you have increased the amount that you owe each time you stall the foreclosure process by approximately $3,000 each time.
You are better off working out a loan modification, partial claim (if an FHA mortgage) or take advantage of the refunding program (if it is a VA mortgage).
Hope this helps.
Barbara
Barbara that sounds like a chapter 13 not a chapter 7. I am asking how the home owner is able to keep the house under a chapter 7. If I mistook you than my aplogizes.
Tom
Tom, yes. Barbara was describing a Ch 13.
You can file a Ch 7 and keep your house. It comes down to this:
1) The homestead exemption in your state (where the property is located),and whether you can claim the exemption.
2) Whether after the liens against the property AND the debtor's homestead exemption meet or exceed the fair market value of the property. In other words, if there's no equity left after mortgages and homestead exemption.
3) Debtor must continue making his mortgage payments even while in CH 7.
Thus, it can be quite advantageous for a debtor to try and keep their home in a
CHh7, if the above factors are present, because, they can keep their house AND get a discharge of the unsecured debts, which you cannot do in Ch 13 for at least 3 years.
Martin
Many times when the debtor does not follow the plan or fails to comply with the loan modification agreement the foreclosure takes up again at the spot where it stopped when the BK stay went into full force and effect.
Martin,
You are totally Dialed in.
Correct across the board!
As long as the debtor gets current and remains current, the debtor can keep the home (provided that the equity in the home did not exceed the homestead exemptions.) my clients do it all the time.