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Many families face losing their homes each day because they are behind on their mortgage payments. A small financial crisis can cause you to miss a few mortgage payments. Once you are two or three payments behind on your mortgage, it may be impossible to catch up. Many mortgage companies demand full payment of the past due balance or they will foreclose on the mortgage. Let’s discuss bankruptcy and foreclosure in more detail and ways to stop foreclosure. Also, you may realize that exploring bankruptcy is the right choice for you foreclosure alternatives to bankruptcy to make the most informed decision.

What is a Foreclosure?

A foreclosure is the legal proceeding required for a bank or mortgage company to seize real estate if a borrower (the owner of the property) does not pay the mortgage payments. 

In some states, the lender must file a foreclosure lawsuit (judicial foreclosure) to gain court permission to sell the home. You are served with the foreclosure lawsuit and have a specific number of days to respond to the lawsuit. If you do not respond to the lawsuit, the court enters a default judgment and orders your home to be sold at the next foreclosure sale.

Other states allow non-judicial foreclosures. In a non-judicial foreclosure, the lender must follow state-mandated rules for seizing a home when the borrower is behind on the mortgage payments. Generally, the lender must file and serve notice of the intent to foreclose the mortgage because of non-payment. The time frames and rules for non-judicial foreclosures vary by state. 

NOLO lists the foreclosure process for each state and provides additional information about the detailed process of foreclosing on a mortgage in each state. However, this is not legal advice. If you are behind on your mortgage payments, it is wise to consult a foreclosure attorney in your area as soon as possible. The foreclosure process in some states can move very quickly, so you could lose your home in just a matter of months after missing the first mortgage payment. 

How Long Does It Take for a Bank to Seize my Home?

Most lenders do not want your home. They want your mortgage payments. For that reason, many banks do not begin foreclosure proceedings until you are several months behind on your mortgage payments. 

However, it is important to remember that a bank could begin legal action to seize your home as soon as the first payment is late. Therefore, it is up to the lender when it begins foreclosure proceedings. The amount of time it takes to complete the foreclosure depends on state foreclosure laws.

In most cases, a mortgage company calls you to ask about a past due payment. If you don’t respond to the phone calls, the mortgage company sends a letter. If you still don’t pay the past due mortgage payments, the lender may send increasingly threatening letters. At some point, an attorney may send a letter stating that this is your last notice to pay the mortgage arrears (past due mortgage payments), or the lender will begin foreclosure proceedings. 

Once a foreclosure attorney has been retained, you may owe additional fees to catch up on the mortgage payments. If a foreclosure action is filed, you will have to pay all costs associated with the foreclosure to stop your home from being sold at a foreclosure auction. Typical costs added to the total of past-due mortgage payments include attorneys’ fees, appraisal fees, costs of the foreclosure lawsuit, and other fees incurred by the lender while attempting to collect the debt.

How Can Chapter 13 Bankruptcy Stop Foreclosure to Save My Home?

When you file for bankruptcy relief, the automatic stay provisions of the Bankruptcy Code protect your property from creditors. Creditors, including mortgage companies and banks, cannot take any further action to collect the debt. In other words, the mortgage company must stop all attempts to collect past due mortgage payments and other amounts owed, including stopping foreclosure actions.

Filing a Chapter 13 bankruptcy plan can save your home from foreclosure. Through the bankruptcy repayment plan, you can catch up on the past due mortgage payments over three to five years. As long as you make your Chapter 13 plan payments and resume making your regular mortgage payments, you can keep your home in Chapter 13. 

Your Chapter 13 case can also lower your car payments and relieve other debt obligations so you can afford your mortgage payments. It will not lower your mortgage payment or reduce the amount you owe to your mortgage company. 

Our free Chapter 13 bankruptcy calculator can help you estimate your payment in a Chapter 13 bankruptcy. 

What Happens if I Am Behind On My Mortgage Payments and I File Chapter 7 Bankruptcy Case?

Filing a Chapter 7 bankruptcy case also stops foreclosure. However, Chapter 7 is not a repayment plan. Most Chapter 7 cases are no-asset cases, meaning that the Chapter 7 trustee does not seize any of the person’s property, and the Chapter 7 case is completed in four to six months after it is filed.

However, Chapter 7 does not get rid of a mortgage lien. You must pay your mortgage payments to keep your home in Chapter 7. The mortgage company can ask the court to modify the automatic stay to continue the foreclosure process before your Chapter 7 case is closed, or it can wait until your Chapter 7 case closes and then proceed with the foreclosure.

Chapter 7 delays foreclosure, but it cannot stop foreclosure unless you find a way to catch up on your mortgage payments. Surrendering your home in Chapter 7 does get rid of the possibility of a deficiency judgment. A deficiency judgment may be granted when a person owes more on their home than the home is worth. In other words, you lose your home and you still owe money to the bank. The Chapter 7 case eliminates a deficiency judgment.

Therefore, if you know you want to get rid of your home, a Chapter 7 bankruptcy case might be the best way to avoid owing any money after the foreclosure sale. You can also get rid of other debts for a fresh start, so that you can rebuild your finances and recover from a financial crisis.

Explore Bankruptcy Options to Stop Foreclosure 

Ascend allows you to compare Chapter 7 and Chapter 13 bankruptcy options to see if bankruptcy might be right for you. You can begin the simple, free process of comparing debt-relief options to get real answers to your questions about bankruptcy and saving your home right now.

Post Author: Ben Tejes

Ben Tejes is a co-founder and CEO of Ascend Finance. Before Ascend, Ben held various executive roles at personal finance companies. Ben specializes in Chapter 13 Bankruptcy, Debt Settlement, Chapter 7 Bankruptcy and debt payoff methods. In his free time, Ben enjoys spending time going on adventures with his wife and three young daughters.

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