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Foreclosure is a scary prospect for any homeowner and can be a difficult situation to deal with. But it’s important to understand that there are a number of actions that a homeowner can take to mitigate the effects of or even stop a foreclosure. It may be surprising to learn that filing for bankruptcy, which for many carries a very negative connotation, can also help delay or even remedy foreclosure. This is not to say that filing for bankruptcy is at all ideal or the right course of action for everyone in this situation. But it is one possible mechanism for dealing with a home foreclosure.
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Two bankruptcy chapters are particularly relevant in the context of a foreclosure – Chapters 7 and 13. One or neither of these may be the right step for you depending on your specific situation. The primary difference between the two is the form of bankruptcy that is taking place; Chapter 7 involves liquidating your assets, whereas Chapter 13 involves reorganizing your finances. Basically, this means that in a Chapter 7 bankruptcy, some of your assets will be sold to pay off your debts, whereas in a Chapter 13 bankruptcy, your repayment plan will be restructured to better accommodate your financial situation. Chapter 7 bankruptcy is the most common type of bankruptcy filing and may be the right choice for those who own few assets and have a modest income. Homeowners who want to retain their property, however, should probably look to Chapter 13 bankruptcy. It’s important to understand all of the requirements and consequences before filing for a chapter.
There are a lot of things to consider when deciding how to proceed. If you need a lawyer for foreclosure defense in New York, it’s crucial that you consult with someone knowledgeable and competent in this area. Get a free consultation from one of the best in Greater New York. Yuriy Moshes has years of experience successfully helping hundreds of homeowners. Real estate attorneys are required to be knowledgeable in several branches of the law. A free consultation with our firm could give you the ease of mind you need.
Filing for bankruptcy can be the right move when facing a foreclosure, but before making any decisions, it’s important that you understand your financial situation and the consequences of filing. In essence, both bankruptcy and foreclosure signal that you are unable to repay your debts. But there are a few key differences between the two. For one, in a foreclosure, the lender initiates the process, whereas you, the homeowner, would initiate a bankruptcy filing. Another difference is in your financial obligations to the lender following the sale of your property. If your property is put up for sale, you may still owe money to the lender in the case of a foreclosure if proceeds from the sale don’t fully make up for the debt. In a Chapter 7 bankruptcy, for example, all debt would be discharged.
Filing for bankruptcy also triggers an automatic stay, which temporarily stops the lender from foreclosing on your home (refer to the New York State foreclosure timeline for more information about where you are in the foreclosure process) and also pauses actions by other creditors. To figure out whether filing for bankruptcy would be right for you, read below about the differences between Chapter 13 and Chapter 7 bankruptcy. As mentioned, you may also want to acquire the help of a foreclosure defense attorney to guide you through the process of making a decision.
Chapter 13 bankruptcy is sometimes referred to as a “wage earner bankruptcy.” It is designed for those with sufficient disposable income to warrant a reorganization of debt, as opposed to liquidation assets. A Chapter 13 bankruptcy can give you time (from three years to a maximum of five) to cure the mortgage default. Perhaps you have a reasonable amount of income to cover your bases and make some repayments but are not able to keep up mortgage payments as originally planned. In the restructuring that occurs in a Chapter 13 bankruptcy, you would be able to propose a repayment plan that better accommodates your financial situation.
The filing process begins with the bankruptcy court serving your area, and an impartial bankruptcy trustee would be assigned to you to supervise your case. An “automatic stay” would go into effect, pausing a majority of collection actions against your property and stopping your lender from going forward with a foreclosure sale. At the end of a Chapter 13 bankruptcy, much of the debt remaining (after your repayment period of three to five years) will be discharged if you otherwise stick with the plan.
You should strongly consider filing Chapter 13 over chapter 7 if you want to keep your home, as in a Chapter 13 bankruptcy, foreclosure is stopped. Retain the help of a real estate law firm if you need more guidance on what your options are in the event of a foreclosure.
A major benefit to filing for Chapter 13 bankruptcy is that you will not lose your home (or any other property) if you are able to keep up with payments according to the repayment plan you submitted to the Chapter 13 trustee.
An increase in income may change your repayment plan depending on the extent of the increase and whether other aspects of your finances (e.g. expenses) have changed. A large income boost that elevates your after-tax pay and disposable income has a high likelihood of increasing your monthly repayment. The original repayment plan will often include a provision regarding your notification obligations to the trustee in the case of income increase. If the language is silent on this matter, it’s advised that you consult a bankruptcy or foreclosure attorney.
No, the maximum length of a Chapter 13 bankruptcy is 60 months or 5 years.
When it comes to managing secured debt in a Chapter 13 bankruptcy, you have a bit of choice in the matter. You can either retain the secured property and continue paying it off in monthly installments, or you can surrender the collateral to the lender. A home mortgage is one type of secured debt, as are car loans and tax liens.
In New York, there are no restrictions on the number of times you can file for bankruptcy. That said, there are certain restrictions with regard to timing if you receive a discharge of debt. A subsequent Chapter 13 filing would require that you wait four years from the date you previously filed. The timing restrictions, however, do not apply if you did not experience any discharge of debt in the previous filing.
It is possible to refinance your mortgage in a Chapter 13 bankruptcy, but you must normally at least a year. For Federal Housing Administration (FHA) and Veterans Affairs (VA) loans, you will have to demonstrate that you have been able to stick to your repayment plan for at least a year and acquire permission from a bankruptcy court. For conventional loans, you generally have to wait two years after you’ve completed your repayment plan.
There are certain benefits and drawbacks to filing for Chapter 13 Bankruptcy. To sum, you may want to consider these pros and cons of bankruptcy Chapter 13:
Benefits:
Drawbacks:
Chapter 7 bankruptcy, often referred to as traditional bankruptcy, is what most people think of when bankruptcy is mentioned. It involves liquidating your assets to help pay off your debt. Instead of devising a repayment plan like in a Chapter 13 bankruptcy, you would work with a bankruptcy trustee to sell your property, using the proceeds to pay creditors. New York state does allow for certain exemptions to this sale. The greatest advantage to a Chapter 7 bankruptcy is that the debtor generally gets to discharge a significant amount of debt in a fairly short amount of time (the process generally takes between three and five months). In a sense, you would be able to get a “fresh start,” given that you would no longer have to worry about the debt that is discharged.
Your eligibility to file for Chapter 7 bankruptcy depends on your financial situation with regard to your income and expenses. The “means test,” a formula that takes into account monthly income and the extent of your expenses, will determine whether you are eligible to file. However, if your income relative to your household size is below the New York median, you would be eligible to file for Chapter 7 without having to use the means test.
Although relief from debt via Chapter 7 discharge is a major upside to filing for this chapter, there are certain caveats. Some unsecured debts, such as child support and alimony, will not be discharged in Chapter 7 bankruptcy. Moreover, you may still be liable for debts from tax and student loans. Another downside is that you may lose some of your property, including your home. If your property is considered nonexempt in New York, the trustee may be able to sell the property to help pay off your debts.
Eligibility for Chapter 7 bankruptcy is based on your finances at the time you file – your financial situation after filing typically does not affect your eligibility. There are some exceptions to this general rule, particularly if the amount of the raise is great. You should seek the advice of a bankruptcy attorney to ensure that you follow the proper protocol.
There is technically no limit in the number of times you can file for bankruptcy. There is, however, a limitation with regard to timing. That is, you must wait at least 8 years from the time you filed your previous Chapter 7 bankruptcy to be able to file again.
Chapter 7 will be able to delay the foreclosure for about 4 months. Keep in mind that in a Chapter 7 bankruptcy, foreclosure by the lender does not stop.
No, a Chapter 7 bankruptcy does not stop foreclosure; it only delays it.
This will depend on whether your equity in the house is exempt. Please refer to the list of New York bankruptcy exemptions. You will also be able to include certain federal exemptions to your NY exemptions.
There are several pros and cons to filing for Chapter 7 bankruptcy. To sum, some of these benefits and drawbacks are:
Benefits:
Drawbacks:
This table summarizes some of the differences in going with Chapter 7 versus Chapter 13 bankruptcy in the context of a foreclosure. It may be helpful to retain a lawyer to help guide you through the foreclosure process and determine whether filing for bankruptcy may be right for you. If you need a lawyer for foreclosure defense in New York, it’s crucial that you consult with someone knowledgeable and competent in this area. Get a free consultation from one of the best in Greater New York.
Yuriy Moshes has years of experience successfully helping hundreds of homeowners. Real estate attorneys are required to be knowledgeable in several branches of the law. A free consultation with our firm could give you the ease of mind you need.
| Chapter 7 | Chapter 13 | |
| Type of Bankruptcy | Liquidation | Reorganization |
| Will filing stop foreclosure? | No, there would only be a delay | Yes, if you make the monthly payments according to your repayment plan |
| Eligibility | Eligibility is based on income expenses. Refer to the “means test” if your income relative to household size is above the NY median. | Eligibility is based on income – your income must be high enough to be able to make monthly payments towards the mortgage (and other debts) for three to five years |
| Do you get to keep my home? | It will depend on whether your property is considered exempt property in New York | Yes, if you make the monthly payments according to your repayment plan |
| How long will it take to discharge my mortgage? | Typically three to five months | Three to five years, depending on your repayment plan |
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If you need a lawyer for foreclosure defense in New York, it’s crucial that you consult with someone knowledgeable and competent in this area. Get a free consultation from one of the best in Greater New York.
Yuriy Moshes has years of experience successfully helping hundreds of homeowners. Real estate attorneys are required to be knowledgeable in several branches of the law. A free consultation with our firm could give you the ease of mind you need.
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888-231-4891
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