Stopping a foreclosure through Chapter 7 or 13 while addressing your whole financial picture can be much better than hurrying a home sale.
The last few blog posts in this series has been about how filing bankruptcy can buy you a few more months or even several years, so you don’t have to sell your home when under pressure from your creditors but rather when you’re financially and personally ready. There’s no greater pressure than when you are under threat of foreclosure by your mortgage lender, and especially when the actual date of foreclosure sale is looming.
The Temptation to Sell Quickly
If you have been struggling to keep up on your main mortgage, or your second (or third) mortgage, and/or if every year you struggle to pay the property taxes, it could be perfectly sensible to sell your home to get out from under the debt. That may be especially true if you have no equity and your hopes of your home being a good investment have not worked out. Or if you do have some equity it may be perfectly sensible to get at that equity to pay down some of your other debts.
But decisions like these are not sensible if they are based on assumptions which are not accurate. If you are thinking about selling your home quickly to prevent losing it to foreclosure, consider the following situations:
- You’re selling fast because you are behind on either your first or second mortgage, or both, and know there’s no way you can afford to pay both. But what if you didn’t have to catch up on or pay most of that second mortgage and could concentrate your financial resources on that first mortgage, while getting relief from all your other debts?
- You owe a bunch of income taxes, and maybe even have a tax lien against you home, and understand that income taxes can’t be written off in bankruptcy so you see no way that can help. But what if some or all of your unpaid taxes could be written off, and that tax lien could be released from your home’s title without paying anything on it?
- You wish you could hang onto your home for a few more years before selling because you’re just starting to build equity again, but you are many thousands of dollars behind on your first mortgage and heard that even in bankruptcy you have to catch up on the first mortgage. But what if you were given years to catch up or didn’t even have to catch up until you sold the home 3-4 years later, when it better fit into your family plans and you’d built up some equity?
There are many, many ways that either Chapter 7 “straight bankruptcy” or Chapter 13 “adjustment of debts” can help in ways you likely are not aware of, and may have misassumptions about.
Stopping a Foreclosure through the “Automatic Stay”
You likely know that filing a bankruptcy case stops a foreclosure. The federal law called the “automatic stay” is one of the most powerful parts of bankruptcy law. It trumps state law which allows and governs home foreclosures. So, through bankruptcy you can stop an about-to-happen foreclosure, whether it’s scheduled to happen by “non-judicial” auction or through a “judicial” sale as part of a foreclosure lawsuit by your lender.
The Tools of Bankruptcy
But that’s just the beginning of how filing either a Chapter 7 or Chapter 13 can help you either keep your home or sell it at the time when it’s in your best interest to do so. Bankruptcy law provides a wealth of tools for helping you keep your home, or to buy extra months or even years before needing to sell.
Please review the last several blog posts of this series for explanations of many of these tools. For example, if you have a second or third mortgage, you may be able to avoid paying most of one or the other of them, possibly even both, potentially saving you tens or even hundreds of thousands of dollars and getting you much closer to building equity in your home. If you have a judgment lien, or tax or support lien, if you are behind on property taxes, or many months behind on your mortgage payment, in all these situations bankruptcy may be able to help in ways better than you thought possible. You may be able to take advantage of property values that are finally climbing in most markets, by staying in your home permanently or long enough for it to regain some of its value.
Every homeowner facing a foreclosure has a unique set of circumstances which deserves an individual analysis. Don’t rush to sell before finding out the tools that can be put to work for you and your home. Bankruptcy can often give you a number of many different combinations for solving your own personal home challenges, so you need to find out what combination of tools would best fit your own goals.