How Filing Bankruptcy Can Help Save Your Home from Foreclosure

In September 2011, one in every 3,321 housing units in New Jersey received a foreclosure filing, according to RealtyTrac. When a borrower defaults on a mortgage loan, the lender can sell the property at a foreclosure auction, after issuing proper notices to the borrower in accordance with state foreclosure laws. In New Jersey, the law only allows judicial foreclosures, meaning all lenders must go through the court system to foreclose on a property. In some states, however, lenders can foreclosure without obtaining a court order, which is known as non-judicial foreclosure. Homeowners facing foreclosure who wish to save their home may be able to halt the foreclosure sale by filing for bankruptcy protection.

The Automatic Stay

When a person files for bankruptcy protection, in most cases, an automatic stay immediately goes into effect as soon as the case is filed. A bankruptcy stay prevents creditors from taking certain collection actions while the bankruptcy case is pending, including foreclosure. After a person files bankruptcy, a creditor can only proceed with foreclosure by obtaining special permission from the bankruptcy court. Therefore, a homeowner facing foreclosure may be able to use Chapter 7 or Chapter 13 bankruptcy as a means of stopping a pending foreclosure sale.

In situations where a debtor has filed more than one bankruptcy case within a one-year period, however, the automatic stay may be limited to 30 days or not take effect at all. An experienced Morris County bankruptcy attorney can assist debtors in filing all necessary paperwork to ensure the bankruptcy stay remains in place during the pendency of their case.

How Chapter 7 and Chapter 13 Can Help:

Once a Chapter 7 or Chapter 13 bankruptcy case has been filed and the automatic stay is in place, debtors can keep their home by:

  • Catching up missed mortgage payments through a Chapter 13 plan
  • Obtaining a loan modification agreement from the lender that brings the loan current
  • Working with the lender to sell the property through a short sale
  • Obtaining a forbearance agreement from the lender, which is a short-term payment plan

If a mortgage lender seems willing to work with the borrower on negotiating a forbearance or loan modification agreement or conducting a short sale, then filing a Chapter 7 bankruptcy may be a viable option. Chapter 7 can halt a foreclosure sale, gives a homeowner approximately three months to negotiate while the case is pending and the automatic stay is in effect and may allow a debtor to discharge any deficiency balance owed after a short sale.

A homeowner whose mortgage lender has proven reluctant to offer any modification or forbearance options, on the other hand, or one whose property will likely take a long time to sell even through a short sale, may benefit most from filing Chapter 13 bankruptcy. In a Chapter 13 case, a debtor enters into a payment plan. The debtor can pay off mortgage arrears through the Chapter 13 plan, thus allowing him or her to catch up on missed mortgage payments and bring the loan current before exiting the bankruptcy.

Seek Professional Assistance

Deciding which type of bankruptcy would be most beneficial to you, as well as understanding which chapters you are eligible to file, can be difficult. Contact a qualified Morris County bankruptcy lawyer to have your case evaluated by a bankruptcy professional. An experienced bankruptcy lawyer will help you understand all available options for saving your home from foreclosure, and if you decide to file for bankruptcy protection, will assist you in moving through the bankruptcy process smoothly.

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