- September 21, 2024
- Kelvin Birk
- Bankruptcy
When times are tough and you are overwhelmed with debts you cannot pay, one of the most frightening thoughts is the possibility of losing your home through foreclosure. Fortunately, there is a way out. While no one wants to have to file for bankruptcy, doing so can provide the opportunity to not only stop foreclosure, but to enable you to achieve a fresh financial future and start to rebuild your life.
Bankruptcy is a legal way to have many debts forgiven and put you on the road to financial recovery. Filing can keep creditors from harassing you and seizing your possessions, discharge unsecured debts, including credit cards, medical bills and installment loans, and provide a way for you to stop foreclosure and keep your home and other essential assets.
How Chapter 7 Bankruptcy Can Stop Foreclosure
Chapter 7 bankruptcy, the most common type, can temporarily stop foreclosure through the automatic stay provision, which is an injunction that halts all debt collection activities, including foreclosure proceedings, as soon as the bankruptcy petition is filed. This is particularly useful if a foreclosure sale is scheduled to occur in the next day or so, as filing will stop the sale immediately.
This stay typically lasts for 3 to 4 months, which gives you breathing room to either catch up on missed mortgage payments or negotiate a loan modification. An experienced Missouri bankruptcy lawyer can help you come up with a solution that permanently stops foreclosure and can handle all paperwork and guide you through the process to make sure your bankruptcy is successful and gets you on the road to financial recovery.
Understanding Foreclosure in Missouri
In Missouri, home foreclosures can occur through either a judicial or non-judicial process. The judicial process occurs when a lender files a lawsuit asking a court for an order allowing a foreclosure sale. You must respond with a written answer, or the lender will win the case. If you defend the lawsuit, it will have to go to court; if you lose, there will a judgment against you and the lender can foreclose on your home.
The non-judicial foreclosure process does not require court appearances and is more commonly used. The process starts when you receive a letter stating that the mortgage loan is in default. Federal law generally does not allow the lender to begin the foreclosure process until you are more than 120 days past due on payments, with some exceptions (12 C.F.R. § 1024.41).
The following steps then will occur:
- Notice of Sale: The lender or trustee must mail a notice of sale to you at least 20 days before the foreclosure sale and must also publish a notice of the foreclosure sale in a local newspaper multiple times.
- Foreclosure Sale: The property is sold at a public auction, where the lender can make a credit bid up to the total amount owed, including fees and costs. If the foreclosure sale brings less than the total debt owed, the lender can obtain a deficiency judgment against you for the remaining balance. If the sale brings a surplus, you are entitled to that surplus money.
- Redemption Period: If the lender purchases the property at the foreclosure sale, you have a one-year redemption period to reclaim the property by paying off the debt. To do so, you must give written notice of your intent to redeem at the sale or within ten days before the sale and satisfy a bond requirement (§ 443.420). There is no redemption period if a third party purchases the property.
How Chapter 7 Bankruptcy Can Stop Foreclosure
Once the Chapter 7 bankruptcy petition is filed, lenders must stop the foreclosure process unless they get special permission to proceed, called Relief from Automatic Stay. While Chapter 7 bankruptcy does not eliminate mortgage debt or permanently stop foreclosure, the automatic stay allows you the opportunity to address the underlying mortgage arrears during the stay period. If you can get caught up with your mortgage payments by the end of the bankruptcy case, you will not face foreclosure.
Benefits of Chapter 7 Bankruptcy for Stopping Foreclosure
Since Chapter 7 bankruptcy will eliminate most non-secured consumer debts, such as credit card and medical debts, utilities, and payday or personal loans, not having to make these payments may allow you to catch up on your mortgage. Your attorney can use this period to negotiate with your lender to come up with a more permanent solution and can determine if Chapter 13 bankruptcy, which allows you to keep your home, is better for you.
The automatic stay will end with the closing of your Chapter 7 case, and if you haven’t been able to reaffirm or make a new payment agreement on your mortgage, the bank can foreclose on it. If you can get your mortgage payments current by the end of the bankruptcy case, you will not face foreclosure.
Considerations Before Filing Chapter 7 for Foreclosure
Before filing for Chapter 7 bankruptcy, you need to consider whether the automatic stay will be enough to allow you to keep your home. Once the bankruptcy case ends and your dischargeable debts are eliminated, the automatic stay ends; if you haven’t been able to reaffirm or make a new payment agreement on your mortgage, the bank can still foreclose on it.
Another consideration is how much non-exempt equity you have in your home. Missouri has a homestead exemption of $15,000, so if your equity in your house is more than $15,000, you may be better off filing under Chapter 13. Chapter 13 bankruptcy allows you to make a structured repayment plan with your creditors, including your mortgage lender, over a three- to five-year period. If you complete your plan successfully, you will be able to keep your home.
It is important to talk to a bankruptcy attorney and find out whether you will be able to keep your home before filing for Chapter 7 bankruptcy.
Alternatives to Chapter 7 Bankruptcy for Foreclosure
In addition to filing Chapter 13 bankruptcy, there may be other alternatives to filing under Chapter 7. These include:
- Debt Settlement – This involves negotiating with your creditors so they agree to forgive a portion of the debt in exchange for a one-time, lump-sum payment that is typically less than the total amount owed.
- Asset Liquidation – Selling off valuable possessions to generate funds that can then be used to pay down debt.
All these options have downsides, so consult with an experienced debt relief attorney before making a decision.
When to Consult with a Bankruptcy Attorney
If you are facing foreclosure, it is important to consult with an experienced bankruptcy attorney immediately to avoid making mistakes that can get you into a deeper financial hole.
Bankruptcy is not something to be entered into lightly, but it can relieve stress and allow you to move on with your life. If you are a debtor whose financial obligations have become overwhelming, attorney Kelvin Birk can examine your financial situation to determine if Chapter 7 or some other debt-relief solution is right for you. Our experienced lawyers understand what you are going through and are here to help.
Call us today for a free consultation to discuss your individual situation and get started on the road to a brighter financial future.
FREE CONSULT CALL NOW 573-332-8585
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]