There has been an incredible amount of press recently that suggests a significant improvement in the real estate market. However, there is stilll a way to go before mortgage balances once again are lower than the property’s current value. In the interim, many are still facing foreclosure due to increases in mortgage payments, or decreases in household income. The major banks have recently released a statement that foreclosures are set to increase during the second half of 2013.
In fact, one of the reasons, real estate professionals see an improvement in demand for homes for sale, (a buyers market), is because ironically, there is a shortage of homes for sale. Home owners cannot list a home for sale if it’s worth less than they owe. Their choices are limited. Foreclose, abandon, shortsale or bankruptcy. For those with a second mortgage, bankruptcy might be a solution, since it can strip away (discharge) the second lien if it is totally unsecured by the property’s current value.This decreases the amount owed, and increases the owners equity. Now they can sell, if that’s what they want to do. Better yet, stay in the home, and watch the value go up, without paying for the second mortgage.
When you are unable to make your mortgage payments on time, the bank starts a foreclosure process. Foreclosure is a legal procedure that involves mortgaged properties. If a homeowner defaults on his or her mortgage, by either failing to make mortgage payments or failing to follow other terms of the mortgage document, foreclosure may be the result. The homeowner relinquishes all rights to the property, and the mortgage lender takes possession of the property. Usually there is a forced sale of the property at public auction; the proceeds of this sale are applied to the mortgage debt.
Bankruptcy is a legal procedure that begins when an individual has more debt than assets. dismiss the filing if the debtor’s income is greater than the state median income. However, the US bankruptcy code also provides for a restructuring of debt, through a Chapter 13 procedure. This is the procedure that allows for wiping off that second mortgage.
Instead of liquidating all assets as in a regular bankruptcy Chapter 7, an individual filing for bankruptcy under Chapter 13 agrees to repay creditors out of his or her future income. Chapter 13 is only available to individuals with regular incomes whose debts do not exceed $1,000,000 ($315,000 in unsecured debts and $1,010,000 in secured debts). Each Chapter 13 debtor, through his or her attorney, writes a plan, which must be approved by the bankruptcy court. The debtor must pay the Chapter 13 Trustee the amounts set forth in the plan and complete an education course in personal financial management as approved by the U.S. Trustee. Debtors receive a discharge after they complete their Chapter 13 plan.
For those in foreclosure, a chapter 13 bankruptcy repayment plan may be the answer. You will still have to make your regular mortgage payments on time, but mortgage arrears can be amortized over several years, so you don’t have to catch up all at once.
It is a solution for those struggling with both mortgage payments and unsecured debt like credit cards, because the bankruptcy can discharge the unsecured debt, and give you a chance to use that money to save your home,
The U.S. Courts’ publication Bankruptcy Basics refers to a Chapter 13 bankruptcy as “an adjustment of debts of an individual with regular income” where the debtor works with the bankruptcy court to develop a repayment plan for the debtor to follow over the next three to five years. Upon completion of the repayment plan, the bankruptcy court will discharge any remaining eligible debts.
A Chapter 13 bankruptcy filing can stall or derail foreclosure proceedings. That’s because of bankruptcy’s “automatic stay” provisions that force creditors to the sidelines while the bankruptcy court sorts things out. The lender can petition the court to allow it to continue with the foreclosure, depending on where you are in the foreclosure process, but it should buy you some time.
The following, is from page 24 of the U.S. Courts’ publication Bankruptcy Basics:
By virtue of the automatic stay, an individual debtor faced with a threatened foreclosure of the mortgage on his or her principal residence can prevent an immediate foreclosure by filing a chapter 13 petition. Chapter 13 then affords the debtor a right to cure defaults on long-term home mortgage debts by bringing the payments current over a reasonable period of time. The debtor is permitted to cure a default with respect to a lien on the debtor’s principal residence up until the completion of a foreclosure sale under state law. 11 U.S.C § 1322(c).
Clearly, you should hire a bankruptcy attorney to guide you through this complex process. That’s why the Law Offices of Paul M. Allen is here to help you. Attorney Allen and his pinoy staff can re-structure your finances and stop that foreclosure through the flexibility of a Chapter 13 plan.
Take steps to save your home today. Find out what your options are. Call the law offices of Paul M. Allen and schedule a free consultation. Two convenient offices to serve you. Glendale 818- 334-5445, and Cerritos 562-356-9931.
(This article is for information purposes only, and does not necessary reflect the company’s opinions and views on general issues. We make no warranty, prediction nor representation, nor do we assume any legal liability for the completeness of any information and its effect on any case. Each case is different and results depend on the facts of each case. Consult with and retain counsel of your own choice if you need legal advice.)