Facing foreclosure? Here’s how bankruptcy can help save your home
By Melanie Walz Scaringi, Esquire
One of the biggest misconceptions that people facing bankruptcy have is that they will be forced to part with most of their property, including their home and car.
The truth, however, is that for homeowners facing a foreclosure, a Chapter 13 bankruptcy filing is among the most effective legal tools available to help families keep their homes.
At Scaringi & Scaringi P.C., I meet many hard-working people who have fallen behind on their mortgage payments due to illness or a job loss. In some cases people have returned to work, but because they are in arrears they still face the threat of foreclosure and need the protections offered by a Chapter 13 filing.
Here’s how it works.
Hitting the pause button on foreclosure
Short of a sheriff’s sale of the home, filing for Chapter 13 freezes the foreclosure process in its tracks. Homeowners who temporarily fell behind on their mortgage payments can get up to five years to make good on the portion of the mortgage payments that fell into arrears.
Typically, a bank begins the foreclosure process once a homeowner falls 90 days behind on his or her monthly mortgage payments, though some wait longer. Once the process begins, it takes six months to a year for the owner to lose the home.
I advise any homeowner facing foreclosure to immediately consult with a bankruptcy attorney to ensure that all legal options are preserved. The sooner you call, the quicker we can help to save your home.
When Chapter 13 is right for you
While Chapter 13 is perfect for the homeowner who temporarily falls behind on mortgage payments, it is not for someone who is unable to make payments.
The idea behind Chapter 13 is to give a legal reprieve from foreclosure so a plan can be developed allowing the homeowner to pay off the back debt while making the current monthly mortgage payments. A repayment plan is developed as part of the Chapter 13 process, and a trustee appointed by the court collects the payments and transfers them to the bank.
A Chapter 13 filing does not wipe out existing mortgage debt or payment arrears and only works for someone who is again able to afford the current monthly mortgage payments as well as the Chapter 13 plan payments. Homeowners typically have three years to pay off the arrearages, but this can be extended to five years.
A successfully completed Chapter 13 plan means that the homeowner who encountered a temporary hardship can keep his or her home. The bank is legally compelled to withdraw the foreclosure once the Chapter 13 proceeding is successfully completed.
Being realistic, not emotional
So many emotions are tied up in our homes. But a family facing foreclosure must be realistic about whether they can afford to make the payments that a Chapter 13 filing will require.
If a family can’t make the current mortgage payment, much less the repayment installments called for under the three- to five-year Chapter 13 plan, then there is no point in pursuing this option. That’s because Chapter 13 grants only one last chance: Fall behind on another mortgage or arrearage payment, and the bank can move to get relief from the protection of the Bankruptcy Court so that it can resume its’ foreclosure action.
Our office has a high success rate with Chapter 13 because we take the time to explain the process and fully understand every client’s unique financial situation. Filing for bankruptcy is never a one-size-fits-all proposition, and we take the time to ensure that the filing meets the needs of our clients.
Should you and your family be facing foreclosure ─ or any other dire financial circumstance ─ don’t hesitate to call us to discuss all of your legal options under U.S. bankruptcy law. We have the experience to preserve as many of your assets as possible and return you to a sound financial footing.