By Laura J. Neville, Esq.
You are likely reading this article because you have fallen behind on your
mortgage payments and either you have been threatened with foreclosure, or a
foreclosure complaint has been filed against you by your mortgage lender.
Filing a bankruptcy petition can help you keep your home, or, if you can no
longer afford to keep your home, filing a petition allows you to surrender
it without any personal liability for the mortgage.
Allowing The Foreclosure
First, if you just cannot afford to keep your home or you wish to surrender your home for other reasons, you would be wise to consider not simply allowing it to foreclose. If you do, you will ultimately be liable for any deficiency on your account with the mortgage lender once the property is sold, and the mortgage lender may sue you and obtain a judgment against you for that amount.
Allowing the Foreclosure in Bankruptcy
If instead you surrender the property in bankruptcy to the mortgage lender, you will be discharged of the account deficiency, meaning, you are no longer personally liable for the mortgage, and the mortgage lender cannot make any attempt to collect that deficiency from you.
Fighting to Keep Your Home
If however you wish to retain your home, filing a bankruptcy petition halts pre-foreclosure collection as well as foreclosure litigation. Filing a Chapter 13 petition allows you to craft a plan to repay the mortgage arrears over time, and you can keep your home as long as you pay the monthly mortgage payments in addition to your plan payments. Clearly, Chapter 13 is for debtors with enough steady income to afford to cure the arrearage over three or five years.
What if the Payments Are Too Much?
But what if you do not have enough income to cure arrears, or to keep your mortgage current? You may still be able to keep your home. Filing a Chapter 7 petition also stays pre-foreclosure collection attempts and foreclosure proceedings, giving you time to explore other options such as loan modification with the lender or enrollment in the New Jersey Foreclosure Mediation Project.
“Stripping” Second and Third Mortgages
Last, current market conditions have created an additional avenue of debt reduction for debtors who have more than one mortgage, owe more on their mortgages than the property is worth, and have enough income to fund a repayment plan and keep the first mortgage current. If the property is worth less than the amount owed on the first mortgage, a second mortgage may be “stripped off” as unsecured and discharged through a Chapter 13 bankruptcy filing. An example: a property is worth $150K and it is encumbered by a first mortgage in the amount of $160K (not unheard of, considering what the market bore just a few years ago) as well as a home equity line of credit of $22K. If the property owner files a Chapter 13 petition, he or she will be able to strip off that home equity line of credit and get that $22K debt discharged as unsecured.
Always Talk to a Lawyer First
Before we conclude, please take note of this important caveat: this article is not legal advice, nor is it intended to be legal advice. The purpose of this article is merely to illustrate the possible advantages of filing a bankruptcy petition when your property has become subject to foreclosure or the threat of foreclosure. The Bankruptcy Code can be a powerful tool for an honest but unfortunate debtor like yourself, when utilized fully. An experienced bankruptcy attorney can assess the particular facts of your case and recommend a course of action that will realize your goals, whether your goal is to keep your home or surrender it.
New Jersey Lawsite Home | Lawyer Search | County Directory | Practice Area Directory | Articles | Contact