Bankruptcy Can Stop Foreclosure

With the economy in crisis, the jobless rate hovering near 10 percent and the housing market collapse of a few years ago, many people find themselves in a situation where they cannot afford mortgage payments, but yet cannot sell their house. Sadly, many in this situation are facing foreclosure.

While the situation may seem helpless and losing the house in foreclosure may seem inevitable, Chapter 13 bankruptcy may provide a realistic opportunity for many to save their homes.

Foreclosure Statistics

According to realtytrac.com, in July, there were 66 new foreclosure filings in the Appleton area and 4,194 new foreclosure filings across the state of Wisconsin. So far this year, there have been 29,447 foreclosure filings in the state.

Nationally, 325,229 foreclosures were filed, bringing the year-to-date number of foreclosure filings to 2,287,123.

Foreclosure Process

In Wisconsin, there is a statutorily mandated 12-month period of redemption before the property is sold at a sheriff's sale. This means in order to keep the home, the person who had his or her mortgage foreclosed has one year from the date of the foreclosure judgment to repay what is owed, plus costs and interest.

However, if redemption on the mortgage is not made, the property will be sold to the highest bidder at auction. If the sale at auction does not satisfy the outstanding mortgage, the lender has the option to seek a deficiency judgment against all parties who are liable for the mortgage debt in order to make up the gap between sheriff's sale price and the total mortgage debt.

If the lender waives deficiency and forgoes the right to seek a deficiency judgment against the debtor(s), the redemption period is shortened to six months. From the debtor's perspective, the debtor agrees to shorten the redemption period in exchange for the lender forgoing the right to seek a deficiency judgment if the sheriff's sale does not yield a sale price that satisfies the outstanding mortgage debt.

Benefits of Bankruptcy

Chapter 13 bankruptcy, often referred to as "wage earners'" bankruptcy, offers those debtors that have a regular source of income a way to repay their debt. Under Chapter 13 bankruptcy, debt is consolidated and a regular monthly payment is established so the debtor is able to repay most of the debt over a period of three to five years. Any debt that is covered by the Chapter 13 bankruptcy that is not paid during the repayment plan is discharged at the end of the three to five year period.

One of the biggest benefits that Chapter 13 bankruptcy offers debtors is the ability to stay in their homes. If a debtor is facing foreclosure or is involved in foreclosure proceedings when Chapter 13 bankruptcy is filed, the foreclosure is stayed. The mortgage debt is then consolidated into the monthly payments, giving the debtor three to five years to catch up on missed mortgage payments.

Along with stopping foreclosure, Chapter 13 bankruptcy potentially offers debtors other benefits, including:

  • Protecting loan co-signers
  • Putting a stop to creditor harassment
  • Rescheduling secured debts over the duration of Chapter 13's repayment period, which may lower monthly payments
  • Consolidating loan payments into one monthly payment

Not everyone will qualify for Chapter 13 bankruptcy. However, having a regular source of income is the biggest obstacle for most who would want to file for Chapter 13 bankruptcy. Speak with an attorney who can help you through the bankruptcy process and offer other options for which you may qualify, including Chapter 7 bankruptcy.

There is Hope

If you are facing mortgage foreclosure, do not think that you are out of options. Chapter 13 bankruptcy may allow you to keep your home by providing you more time to catch up on missed mortgage payments than the repayment period of foreclosure offers. For more information or answers to your questions, speak with an experienced bankruptcy attorney.