Silverberg Business Bankruptcy Law


Bankruptcy and Foreclosures

Unfortunately, thousands of individuals face foreclosure each year. For many families, an illness, a temporary decrease in income, or an accident can lead to missed mortgage payments. After a few missed mortgage payments, most people are unable to catch up because the mortgage lender demands full payment of the entire mortgage arrearage. Is there hope for someone facing foreclosure?

Yes, There is Hope! — A Bankruptcy Stops Foreclosure

Filing for bankruptcy relief stops a foreclosure action. The automatic stay provisions under Chapter 7 and Chapter 13 prevent a mortgage lender from continuing a foreclosure action after the filing of a bankruptcy petition. However, the bankruptcy stay is temporary. You must deal with the mortgage arrearage (the total of your past-due mortgage payments) to keep your home. Depending on your financial situation, you might save your home from foreclosure by filing a Chapter 13 bankruptcy case. If you cannot afford to keep your home, you can avoid a foreclosure deficiency and eliminate your unsecured debts for a fresh start by filing a Chapter 7 case. Let’s look at how foreclosures are handled in Chapter 13 vs. Chapter 7.

Chapter 13 and Foreclosures

A Chapter 13 bankruptcy case is a reorganization bankruptcy. You enter into a bankruptcy repayment plan to pay back a portion of your debts. A variety of factors, including your income, expenses, assets, and debts, affect the amount of your Chapter 13 payment.

The bankruptcy filing stays any pending foreclosure action. The mortgage lender must now work with you through your bankruptcy case to resolve the mortgage arrearage. Mortgage arrearage is paid through your Chapter 13 plan a little each month. You resume paying your regular mortgage payments to the lender outside of the bankruptcy plan.

By filing a Chapter 13 case, you can get rid of debts you cannot afford to pay, such as credit card bills and medical debts, for less than you owe to the creditors. You may also qualify to restructure your car payment to reduce your monthly payments and spread out any taxes you owe over several years. By reorganizing your debts through a Chapter 13 plan, you can resume your mortgage payments to keep your home.

Once your Chapter 13 repayment plan is complete, your mortgage arrearage is paid in full. Many debtors pay off their car loans through Chapter 13 and eliminate unsecured debts so that they only owe their mortgage when they complete their bankruptcy case.

Chapter 7 and Foreclosures

Chapter 7 is not a repayment plan. Therefore, you must catch up the entire past-due portion of your mortgage payments to keep your home. A mortgage lender may petition the bankruptcy court for relief from the automatic stay, meaning it can proceed with the foreclosure action. Some lenders wait until the Chapter 7 case is complete (typically four to six months for a no-asset Chapter 7 case) to resume the foreclosure.

A benefit of filing Chapter 7 if you cannot afford to keep your home is avoiding a deficiency judgment. A deficiency judgment is the balance owed on the mortgage after the sale of the home. It is a personal judgment that can follow you for many years. Filing a Chapter 7 prevents or gets rid of a deficiency judgment from a foreclosure action.

The Chapter 7 case can also eliminate most, if not all, unsecured debts. Therefore, you get a fresh start so that you can rebuild your credit and begin saving for another home in the future.

Contact Us to Discuss Bankruptcy and Foreclosure in More Detail

Law Offices of Jay Silverberg represents clients throughout Westbury and New York. If you are facing a foreclosure or have debts that you cannot pay, bankruptcy may be the right debt relief option for you. 

Call us for a free consultation at 212-687-7000

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