Well, let’s talk to me about what happens in the event that you think that you may need to file a chapter 7 to stop a foreclosure on your house. Usually, and if you file a chapter 7 what that means is that if you’re faced with the foreclosure the filing will automatically stop and halt the foreclosure itself. Let’s say for example that your $10,000 behind on your mortgage payments, and that you just see no possibility of being able to really catch up. And you decide you’re going to go ahead and file a chapter 7 case to stop the foreclosure. It’s beneficial to you for a couple of reasons.
First of all, whenever a person files a bankruptcy to stop a foreclosure you no longer have a foreclosure on your credit report, and if you’re trying to qualify later on for a mortgage this is quite beneficial to you. The second benefit to filing a chapter 7 and trying to stop a foreclosure is that it quite simply buys you more time. Once the case is filed the mortgage company then has to file a motion, a special motion actually called a motion for relief from the automatic state provisions of the bankruptcy code, to allow them to go back into court and to advertise the house for foreclosure. Usually, it takes approximately 30 days to 45 days for the mortgage company to get a hearing on that matter. After that hearing is established, then the mortgage company has to start all over in order to advertise the house for foreclosure.
In a chapter bankruptcy case, the more each company does not have to allow you any extra time to catch up on any of the missed mortgage payments. In order to have that option, you really need to consider filing a chapter 13 case.
There are a couple of other benefits to filing a chapter 7 bankruptcy case if you’re faced with a foreclosure. Let’s say for example, that you’ve got a first mortgage of 50,000 that you’ve got a second mortgage of 75,000, and let’s say the house is only worth $50,000. Well, at least still under the current law, which may be changed later in the future by the United States Supreme Court. You could still strip, that is you could still file a motion in a chapter 7 bankruptcy case to get rid of that $75,000 second mortgage.
Another benefit to filing a chapter 7 case is you have the right to decide whether if you’re obligated on that mortgage whether you want to continue to be obligated on that mortgage. The mortgage company in order to obligate you after the bankruptcy case is concluded has to send to you what’s known as a reaffirmation agreement. A reaffirmation agreement is just a new contract which will survive the bankruptcy itself. If you decide that you’re going to go ahead and assign that new reaffirmation agreement there are consequences to it. First of all, after the bankruptcy case has been concluded, if you’ve signed that agreement you cannot get out of that contract with your mortgage company. It is a new contract, it is a binding contract, it is an enforceable contract. They can foreclose on you, and you would still be liable for the any deficiency if there is one.
As to the reaffirmation agreement yourself, it may not be wise to actually sign a reaffirmation agreement. You may want to just continue to make your mortgage payments on the house. In the event later on that you’re not able to make the mortgage payments, you could simply walk away from the house, and you’d have no liability whatsoever from the mortgage company as far as any deficiency. Let’s say, for example, you decided during your bankruptcy case you did not want to sign the reaffirmation agreement, your bankruptcy case was concluded and that two years after your bankruptcy case that was concluded you could not make your payments.
You could simply walk away from that mortgage you’d have no liability to the mortgage company, and furthermore, it would never show up on your credit report as a foreclosure which is critical. If you have any questions about chapter 7, and filing bankruptcy, and mortgages, or anything along those lines please call my office at 770-792-1000.