Homeowners Filing for Chapter 7 Bankruptcy

If you have fallen behind on your mortgage payments and your lender is unwilling to negotiate a solution, you may be facing foreclosure. In a foreclosure proceeding, the lender reclaims possession of a property because the homeowner has stopped making payments on their mortgage. As a result, the homeowner must forfeit the rights to the property, which the bank then sells to recoup their losses.

Delay or avoid foreclosure in Minnesota by filing for Chapter 7 bankruptcy

Declaring Chapter 7 bankruptcy can be helpful in delaying or avoiding foreclosure. This type of relief is also known as liquidation bankruptcy. The other type of relief most individuals get is known as a reorganization under Chapter 13 of the Bankruptcy Code.

How does declaring Chapter 7 bankruptcy help you hold onto your home? In the short term, Chapter 7 bankruptcy can provide immediate relief from debt collection attempts. As soon as a debtorfiles for Chapter 7 bankruptcy, the court will issue an order of relief, which grants the homeowner an “automatic stay.” This means that lenders must stop attempting to collect your mortgage payments.

The benefits of an automatic stay

An automatic stay can postpone a foreclosure sale by three to four months, because such a sale may not proceed until the bankruptcy filing is completed, which is called a discharge. This can give you more time to get your affairs in order and find a way to rectify your financial situation.

The lender can also file a motion for relief from the automatic stay with the bankruptcy court and – if the motion is successful – proceed with the foreclosure once the motion is granted. But even under these circumstances, this will probably postpone a foreclosure sale by about two months. That might be all the time you need to get back on your feet.

Easier loan modification

In addition, Chapter 7 bankruptcy might make it easier for you to modify your loan. That’s because bankruptcy will lower your debt-to-income ratio, which is the formula that lenders use when considering loan modifications. For example, you might now qualify to refinance your mortgage at a lower rate – and a lower monthly payment.

In the longer term, eliminating your unsecured debt, such as high credit card balances, by declaring Chapter 7 bankruptcy will free up your economic resources so that you can hopefully remain current with your mortgage payments and retain ownership of your home.

If you are struggling with debt, you know how stressful it is trying to pay your mortgage and other bills. Among your options are Chapter 7 or Chapter 13 bankruptcy, and a knowledgeable attorney can help you decide which is the best choice for your unique situation. Realistically, Chapter 13 bankruptcy is more likely to prevent rather than delay foreclosure because you are going to catch up the missed payments as part of a repayment plan. But each situation is unique. That’s why it is critical to have knowledgeable, experienced legal assistance on your side. Don’t be intimidated by the complex process of filing for Chapter 7 bankruptcy. A skilled experienced Minnesota bankruptcy attorney can guide you every step of the way.

Contact an experienced Minnesota bankruptcy lawyer

At Martin & Hedervare PLLC, our skilled bankruptcy lawyers in Minnesota have had years of practice assisting families in the Twin Cities, Minneapolis, and St. Paul areas. Contact us at (651) 243-2974to schedule a consultation today.

Marie Martin
About the Author: Marie Martin
Marie F. Martin is an experienced bankruptcy attorney serving the Twin City area. She represents Minnesota families in bankruptcy court, and has handled thousands of Chapter 7 and Chapter 13 cases from beginning to end.