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Can Filing for Bankruptcy Stop Home Foreclosure?

Christopher J. Kane, P.C. April 7, 2023

House with Foreclosure TapeWhen hard times hit and you start falling behind on your debt obligations, a top priority is holding onto the home you’re living in. If you’re behind in paying your mortgage on your home, the lienholder can commence foreclosure proceedings by following federal and state laws and regulations. Generally, a foreclosure will take up to six months before the mortgage holder can sell your home and evict you. 

This, however, is no solace if your future is so clouded that you have no idea where you’re going to live after you lose your home. Is there any way to retain your home ownership when you’re behind and your lender has issued a notice of default, or worse, started foreclosure proceedings? 

A bankruptcy filing will put a hold on all creditors and prevent them from collecting any debts due while the bankruptcy process goes forward. However, secured creditors – such as those holding interest in your residence – can petition for a release so they can begin foreclosure or repossession efforts, but the automatic stay, as it is called, does allow time to renegotiate the loan.  

In addition, a Chapter 13 bankruptcy filing can even allow you to consolidate your past-due mortgage payments – and all other late payments – into a reorganized plan to be paid over a three- to five-year period, but you will immediately have to resume making your normal monthly payments if you wish to stay in your residence. 

It can get tricky and challenging, so you should definitely seek the advice and counsel of an experienced bankruptcy attorney when you’re facing a possible foreclosure and certainly when the process has already been initiated. In the Portland, Oregon, area, contact the legal team at Christopher J. Kane, P.C.  

Our bankruptcy attorney is experienced in helping clients avoid foreclosure through the application of bankruptcy laws. Reach out immediately wherever you are in Oregon, including Clackamas, Washington, Columbia, and Yamhill counties. 

Foreclosure in Oregon 

Foreclosure looms when you fall behind on your mortgage payments. Foreclosure can be initiated by your lender in one of two ways. One way is through the court system. The lender must file a lawsuit and get a judgment in court to proceed to take your home back and sell it.  

The other method, which is used the vast majority of the time, is through a “power of sale” clause in your mortgage or deed of trust. This allows the lender to proceed outside of the court system. In other words, the non-judicial method of foreclosure hinges upon your having agreed to the lender’s “power of sale” in advance, though you may not even had realized it when you signed your loan documents. 

The Foreclosure Process 

Generally speaking, the mortgage lender must attempt to contact you about your missed payment 36 days after it is late, and of course, late charges will be added. At 45 days, the lender will send you a notice that includes mitigation options and the availability of counselors. If you fail to respond, the lender can then proceed to foreclosure.  

If so, a notice of default must be filed with the county recorder, and the lender then must wait 120 days before commencing with a foreclosure sale. The borrower may cure the default at any time prior to foreclosure by paying all past due amounts, plus costs. If that’s not possible, then bankruptcy may be the only option left. 

Stopping Foreclosure Through Chapter 13 

Whatever form of personal bankruptcy you file, you will receive the automatic stay referred to earlier. While this will put unsecured debts on hold until the bankruptcy is completed, when it comes to secured obligations, creditors can ask the court to proceed to take back the car, home, or other property that was secured and is now in arrears. 

The automatic stay does, however, afford a bit of breathing room to iron out the issue with the creditor when it comes to your home. Perhaps you can stretch out the mortgage or even negotiate for a lower interest rate, but you still have to make up any arrears amounts, perhaps including that sum in the reorganized loan.  

Under Chapter 13, known as the wage-earners plan, you can literally keep everything you own so long as you can work out a repayment plan. How this works is that you figure out your disposable income after meeting living essentials and apply that to monthly payments to partially satisfy unsecured creditors over three or five years.  

Secured creditors must still be paid the monthly obligation due to them. What Chapter 13 can do is take the arrears mortgage amount and bundle it in with the unsecured payments. Of course, going forward you’ll have to meet the normal – or mitigated – monthly obligation. Another great feature of Chapter 13 is the ability to strip away a second mortgage, but this is only possible if your home’s value is less than what is owed on the first mortgage. 

Avoiding Foreclosure Through Chapter 7 

A Chapter 7 bankruptcy filing is known as a liquidation plan, which means your assets will be subject to sale to meet credit obligations, at least partially. Chapter 7 has the same automatic stay window, during which you can work with your mortgage lender to come up with a plan to make up the arrears due them. 

This would generally mean a bump – often a large one – in your monthly payment for a year or so until you’ve made up your late payments. Chapter 7, however, does not afford you the option of stripping away a second mortgage if your home value is less than what’s owed on your first mortgage. 

Dependable Legal Assistance 

If you’re running into financial difficulties and your home ownership is threatened, the quicker you take action, the better. The longer you wait, the more you will owe in arrearage, making any mitigation all the more difficult. Reach out as soon as your finances turn south and the possibility of mortgage default looms.  

In Portland, Oregon, and surrounding areas, contact Christopher J. Kane, P.C. immediately, and let’s work together to keep you in your home and create a fresh financial start for you through the bankruptcy code.