Can Bankruptcy help with stopping foreclosure when all other efforts have failed? Finding yourself in foreclosure is a dire situation that can have long lasting ramifications on your ability to buy a home, or even rent a home affordably after your home has been foreclosed. A bankruptcy could be a way to slow foreclosure proceeding so you can have more time to work out a solution.
What Is Foreclosure?
Getting behind on your mortgage payments for various reasons is what has you be in foreclosure in most cases. Usually mortgage lenders give you up to three months to fall behind before they start foreclosure proceedings. During this time you have every opportunity and right to get caught up on your mortgage. Just make sure that if you do get behind that you call your mortgage company immediately and find out exactly what you need to do to get caught up again.
There will be fees and penalties to pay in addition to back interest and principal payments. Ask to see if some of these can be waived if you can make a lump sum payment to get caught up all at once. and get caught up on your mortgage before they start legal proceedings to foreclose on your home.
Foreclosure ultimately ends up with you being evicted from your home and having the mortgage company sell your home at a public auction. The mortgage company will take whatever sales proceeds from the auction and apply it to paying off your mortgage. You could end up owing more on your mortgage in the form of taxes if the home was a second home or an investment property, but you should not have anymore mortgage payments to worry about.
Tax Law Change Eliminates 1099 Filing Against Your From Mortgage Company
As of a IRS tax law change from 2007 HR Bill 3468 - and to cover two subsequent years as the current law reads, losing your primary residence to foreclosure will not result in any tax income notices from your departing mortgage like you could have gotten in the past. That's right, losing your home in foreclosure might not be as financially devasting as it has in the past as lenders cannot send you a 1099 for their losses when they do not get enough for your home when they sell it during the foreclosure process. This new law only applies to primary residences lost in foreclosure.
How Can Bankruptcy Help Stop A Foreclosure?
Hopefully during the time that the foreclosure process was in motion, you tried the various ways to stop foreclosure like: a loan forbearance, a short sale, or a deed in lieu of foreclosure. If you have attempted or explored the options and have had no luck with them, then your only option may be to file bankruptcy.
You have two choices of bankruptcy to file: Chapter 7 - a liquidation bankruptcy, or a Chapter 13 - a wager earner bankruptcy. Filing a bankruptcy results in the bankruptcy court issuing a Order for Relief which includes what is known as an automatic stay. With the automatic stay in place your creditors are required by law to immediately cease and desist any contact with you including any collection actions they may be pursuing. This includes your mortgage company if you are in foreclosure.
Filing Bankruptcy Slows But Does Not Stop Or Prevent Foreclosure
However, don't count your chickens yet, you are not out of the woods when it comes to being in foreclosure. Depending on what state you live in, and where you are in the foreclosure process, you may have still have to act fairly quick to either work something out with your lender or make other living arrangements. Lenders can ask for a motion to lift the stay which if granted by the court would allow them to continue with their proceedings.
Foreclosure proceedings will be slowed down some no matter whether you file a Chapter 7 or 13 bankruptcy. It is best to check with your bankruptcy attorney about the specifics of using bankruptcy as a strategy to slow or stop the foreclosure process on your home.
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