A husband and wife came to see me the other day to ask about a pending foreclosure of their home. “We’ve fallen behind in our mortgage payments and the bank is threatening to foreclose. Can a bankruptcy save our house?”
The simple answer is, “it depends”. Let’s see what that means.
• Filing bankruptcy will stop a foreclosure sale. Then the question becomes, how long will it keep that foreclosure stopped?
• In a Chapter 13 bankruptcy, you’ll be able to pay off mortgage arrears (amounts you are behind in payments on mortgages) monthly over a maximum of five years (60 payments). You have to be able to pay off the arrears as well as pay current mortgage payments as they come due. If you’re able to do that over the life of the Chapter 13 payment plan, you end up on the other side of the bankruptcy no longer in default on your mortgage payments.
• If the value of your home is less than the balance on your first mortgage, you might also be able to lower your mortgage payments and the total debt you owe by doing a “lien strip” from any junior mortgages, turning those mortgages into unsecured debt like credit cards. Then, you no longer have to pay the junior mortgages to keep your house.
• Credit cards, medical bills, and other “unsecured debt” will be paid through the Chapter 13 payment plan based on several factors, which are too complex to discuss here. The amount the unsecured creditors will have to be paid can vary from nothing to 100%, often a very low percentage.
Now that you know the basics of protecting your home from foreclosure through bankruptcy, if you think this might be valuable for you, explore it with an experienced Fresno Bankruptcy Attorney.