FORECLOSURE AND BANKRUPTCY 101

Bankruptcy Lawyer Phoenix, AZ

Having a hard time paying your mortgage? If you’re reading this in the year 2020, you are not alone. The economic impact of COVID-19 has financially devasted many Americans, making it more and more difficult for them to pay their mortgages and keep their homes. So what can you do? If you are facing foreclosure, read on to learn about what your options might be, including bankruptcy.

What is Foreclosure?

Foreclosure is the process by which a lender attempts to recover the money owed on a defaulted loan by taking ownership of and selling the mortgaged property. Most people are familiar with the term foreclosure in regard to houses and real property.

The foreclosure process varies from state to state and is governed by the law where the mortgaged asset exists. However, there are two primary types of foreclosures:

  1. Judicial Foreclosure: This process requires a court order. The local court system handles the entire process, including holding the foreclosure auction (often on the courthouse steps).
  2. Non-judicial Foreclosure: This process does not require a court order. Instead, the property is often owned by a third-party, a Trustee, who is permitted to act without an order from the court. As a result, this type of foreclosure is often faster and less expensive than a judicial foreclosure.

No matter the type, most foreclosures can often be stopped if the borrower resumes making payments on the loan and brings it up to date. But what happens if the borrower can’t pay off the balance? Then, bankruptcy might become a viable option.

Foreclosure and Bankruptcy

When you file for bankruptcy, the court automatically puts a “stay” on your creditors. This means that the creditor must cease their collection activities immediately. This automatic stay will postpone any foreclosure activity on your home. This DOES NOT mean the foreclosure will be permanently stopped.

Whether or not you’ll be able to keep your home will depend on what happens with your bankruptcy. In general, individuals file either a Chapter 7 or Chapter 13 Bankruptcy:

  1. Chapter 7: Your assets will be liquated and used to pay off the debts. However, because a mortgage uses your home as collateral, you will likely lose the home in order to satisfy that debt.
  2. Chapter 13: Your finances are reorganized into a repayment plan that allows you to pay your creditors over three to five years while maintaining control and ownership of your assets. You must have a reliable income to file a Chapter 13, but if you can make the required payments over a certain length of time, you can avoid foreclosure and you will likely be able to keep your home.

If your home is in danger of foreclosure or you’ve been thinking about filing for bankruptcy, give Kamper Estrada, PLLC a call and learn what your options are.  Our experienced bankruptcy lawyer Phoenix, AZ trusts offers a free one-hour consultation.