Stopping a potential foreclosure of your home is one of the primary benefits of filing for bankruptcy relief. As discussed by my colleagues in other posts, filing bankruptcy puts in place the Automatic Stay. This stay stops all creditors from making any attempts to collect debts from you (including foreclosures) while your bankruptcy case is ongoing.
“In Foreclosure” and “Foreclosed” Differences
Many people are also confused by the difference between “in foreclosure” and “foreclosed.” In normal conversation, a creditor may tell you your home will go “in foreclosure” on a particular date as a result of missed mortgage payments. Typically, they do not mean that the actual foreclosure sale will happen on this day. They generally use the term “in foreclosure” to mean that the creditor has turned the account over to a law firm to handle the actual legal work of selling the property at a foreclosure sale. At this point, most creditors will no longer accept partial payment and will want to you pay the full amount of the missed payments in order to stop a foreclosure sale. You must be notified before such a sale can take place. The mortgage company is required to mail you notice of the foreclosure sale, and a public notice must be placed in a newspaper for several weeks.
The date of the sale is when the property is actually “foreclosed.” On that date is when the property is sold and legally belongs to someone else. So long as a property hasn’t actually been foreclosed and sold to another party, bankruptcy can stop the foreclosure from happening.
Stop Foreclosure with Chapter 13
The best way to stop a foreclosure is with a Chapter 13 bankruptcy case. Chapter 13 is commonly known as a debt-consolidation case, and any mortgage payments you have missed can be put into the plan and consolidated as well. This means that you can pay the missed mortgage payments back over time, instead of having to pay them all immediately in a lump sum in order to stop the foreclosure.
However, it is important to remember that a Chapter 13 consolidation plan usually only includes the back payments that you’ve missed and not your regular monthly payments. Beginning the month after your case is filed, you will need to begin making your regular monthly mortgage payments in order to keep the protection of the Bankruptcy Court. So, when the Chapter 13 plan is setup, you will have two monthly payments: 1) your regular mortgage payment which you will make directly to the mortgage company, and 2) your Chapter 13 plan payment which you will make to the Bankruptcy Trustee appointed by the Court to administer your case. In most cases your Chapter 13 payment will end up being less than if you tried to pay all the bills yourself one by one.
If you are falling behind on a mortgage or have been notified by a creditor that your account will be put “in foreclosure,” then don’t hesitate to call and make an appointment with one of the experienced attorneys at any of our Bond & Botes affiliated offices. We offer free initial consultations to help you decide if Bankruptcy is the right financial move to help you save your home.
Nick Gajewski is an Associate Attorney at the Bond & Botes Law Offices in Florence and Haleyville, Alabama. He holds a Bachelor of Arts from the University of Alabama, and a Juris Doctorate from the University of Alabama School of Law. Nick joined the team of Bond & Botes bankruptcy lawyers back in 2014 and has been helping clients navigate financial issues since. Read his full bio here.