Homeowners struggling with mortgage payments have several ways to keep their house. One
option, sometimes disregarded by struggling homeowners, is bankruptcy.
An important benefit of bankruptcy is that foreclosure proceedings are immediately stopped.
This protection from foreclosure – called an “automatic stay” — allows a homeowner extra
time to get current on mortgage payments. Once a bankruptcy is filed, the law requires that
the mortgage company stop all legal action, including foreclosure. Depending on the type of
bankruptcy filed, it can help force the mortgage company into a payment plan for the arrears,
or give you the time you need to accomplish your goals with the house.
Generally speaking, it is not possible to force creditors to alter the terms of the mortgage
through bankruptcy. However, for those borrowers who are going through bankruptcy,
mortgage lenders may be willing to negotiate a loan modification. This includes reducing
interest rates or allowing late payments to be added to the end of the loan, letting the
homeowner become current on payments. Lenders can also be more willing to negotiate if you
are represented by your bankruptcy attorney, who can help you understand where creditors
are willing to compromise.
Another large benefit to filing bankruptcy is getting rid of unsecured debt such as credit cards,
medical bills and personal loans. The money saved from not having to pay interest on large
credit card debt can allow a homeowner to invest more money into their mortgage payments.
Different Types of Bankruptcy, Different Ways to Stop Foreclosure
If you are behind on your mortgage payments, Chapter 13 bankruptcy can allow you up to 5
years to pay what you owe, while forcing the mortgage company to accept current mortgage
payments. This is usually the preferred Chapter to file when you are attempting to save your
home. Once you file a Chapter 13 bankruptcy, the foreclosure action will immediately stop. The
Chapter 13 bankruptcy will establish a plan to repay the arrears over a period of time, and allow
you to resume mortgage payments going forward.
In some cases, Chapter 7 bankruptcy will work best. If you are current on payments on your
mortgage, but are having a hard time affording payments due to high credit card bills, Chapter
7 could discharge the credit cards and other unsecured debt, helping with cash flow and
allowing you to prioritize your money on the mortgage payments. Chapter 7, however, is a
liquidation process, so it is important to speak to an experienced bankruptcy lawyer to make
sure that the house can be protected. While it may be possible to protect your home from
liquidation in a Chapter 7 bankruptcy, it is typically not the preferred chapter to file if you are
behind in mortgage payments and want to save your home. A Chapter 7 bankruptcy will not create a payment plan to cure mortgage arrears. While a Chapter 7 bankruptcy will stop
foreclosure proceedings for a period of time, ultimately, if you are in foreclosure, the mortgage
company will be able to continue with their foreclosure action after receiving permission from
the Bankruptcy Court. So, if you are behind in your mortgage payments and want to save your
home, Chapter 7 bankruptcy is typically not the way to go.
Contact a Michael Schwartz at 215-396-7900 to see if bankruptcy is the right course for you, or
for other possibilities to save your home.