Category Archives: Real estate

Choosing the Right Chapter to Save Your Home through Bankruptcy

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Both Chapter 7 and Chapter 13 stop a foreclosure of your home. One or the other COULD be better for you, but which one is it?

Many considerations come into play in deciding whether a Chapter 7 or 13 is better for you.  I could list literally dozens of possible ones. Focusing here just on factors involved in saving your house, there are many advantages and disadvantages to each. The answer turns on your individual circumstances. Lawyers are sometimes given a bad time for seemingly answering every question with “it depends.” But when it comes to your home and your financial well-being, the fact is that you need what is best for you in your circumstances. You don’t want a cookie-cutter answer; instead, you need an answer that “depends” on your individual facts and on your personal financial goals and needs.

Say that after examining all the other aspects of your financial life, the choice between the two chapters comes down to how that choice impacts your house. And let’s also assume that this is a house in distress, where a foreclosure is already scheduled or is just around the corner.

One difference between Chapter 7 and Chapter 13 is that the first one generally buys you a relatively short time while the second one buys you a much longer time.

So that leaves the question of whether—in your situation—a Chapter 7 would buy you enough time, or if you need the much stronger assistance of a Chapter 13.

Chapter 13 deservedly has the reputation of being the home-saving chapter of bankruptcy. But every day of the week Chapter 7 bankruptcies are filed which save people’s homes. If you have a sale pending on your house but you’ve run out of time with a scheduled foreclosure; if you have some money coming to cure the arrearage but again have run out of time; if you are very close to getting a mortgage modification approved or are more likely get it approved after discharging you debts in bankruptcy; or if you’ve decided to surrender the house but need a little more time to get into another home—these are possible circumstances where Chapter 7 could well buy you enough time to do what you need to do for your home.

Admittedly, these are relatively rare situations, especially in New Jersey, where foreclosure sales have fairly long time lines. The more common situation is that you lost some income or had emergency expenses, making it impossible to keep up the mortgage payments. And then you regained that income, but maybe not all of it, and now you owe a whole lot in missed payments, late charges and other fees. There’s no way can you catch up on all that in just a few months. Chapter 13 can give you as much as five years to do so. Chapter 13 can also buy you much more time to sell your home, such as to get to a better selling season, or even maybe to allow a child to finish high school. Chapter 13 can also be much better at dealing with other house-related debts, such as property taxes, second mortgages and income tax liens. These choices depend on your unique set of circumstances.

Photo by cjc4454.

Stopping the foreclosure of your home through bankruptcy

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Both Chapter 7 and Chapter 13 can help you save your home. But how does a bankruptcy stop foreclosure?

You have undoubtedly heard that the filing of a bankruptcy stops a foreclosure. You may have also heard that Chapter 13—the repayment version of bankruptcy—can be a good tool for saving your home in the long run. Both of these are true, but are only the beginning of the story. This post tells you more about how bankruptcy stops a foreclosure.

The “automatic stay” is the part of the federal bankruptcy law which immediately blocks a foreclosure from happening. The very act of filing your case “operates as a stay,” as a court order stopping “any act to… enforce [any lien] against any property of the debtor…  .”

But what if your bankruptcy case is filed and the mortgage lender or its agent can’t be reached in time so that the foreclosure sale still occurs? Or if there’s some miscommunication between the lender and its agent or attorney, with the same result? Or if the lender just goes ahead and forecloses anyway?

As long as your bankruptcy is filed at the court BEFORE the foreclosure sale, then that sale is not legally valid, whether it occurred by mistake or intentionally. (This filing “at the court” is usually actually done electronically from my office, with a date and time-stamped record proving when the court filing took place.)

IF a sale happens by mistake after the filing of your bankruptcy, lenders are usually very cooperative in legally undoing the foreclosure sale and its documentation. If your lender would fail to undo such a sale after becoming aware of your bankruptcy filing, it would be in ongoing violation of the automatic stay, exposing itself to significant financial penalties. That would be rare.

Does it matter whether your case is a Chapter 7 or Chapter 13 one for purposes of the automatic stay?

No, the automatic stay is the same under both chapters, and would have the same immediate effect.

On the other hand, how long the protection of the automatic stay lasts can depend on which chapter you file. That’s because even though you get the same automatic stay, the other tools each chapter provides for protecting your home are very different. So your mortgage lender or servicer may very well react quite differently depending on the chapter you file, as well as on what you propose to do about your home and your mortgage within that chapter.

Got real estate? Tell your bankruptcy attorney ASAP.

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When I initially speak to a potential client, one of the questions I ask is whether or not they’ve ever owned any real estate, even a partial interest in land that they’ve inherited and had nothing to do with.

Why do I ask about real estate? For starters, I ask about real estate because the Chapter 7 trustee who reviews your case is likely to ask you at your meeting of creditors whether you’ve ever owned real estate. If you say yes, the trustee will want to know what you did with the real estate, how much it’s worth, and so on. I like to know the answers to important questions like these before they pop up at the meeting of creditors so that if there are going to be any potential problems, we can address them ahead of time.

What are some potential problems with real estate ownership that could crop up? One example is that even in this economy, you might have equity in your real estate – i.e., it might be worth something – and the amount of equity you have in the property can take up some or all of the limited exemptions available to you. This can have an effect on how much property (including personal property) you’d be allowed to keep after the bankruptcy.

Also, if, for whatever reason, you gave away your real estate – including signing it over to someone else (like a relative) just because you couldn’t afford the mortgage payments anymore, you are likely to have a problem. A transfer like this can look like a fraudulent transfer prior to bankruptcy.

In case you’re thinking ” I didn’t commit fraud,” the term “fraudulent transfer” as used in the bankruptcy setting is a specific legal term that has a specific meaning and is defined broadly in the law. It does not necessarily require intent to commit fraud. It’s just that Congress decided it didn’t like the idea of people dumping assets before filing, probably because it didn’t want people trying to look poorer when they had assets they could have sold to pay their debts but gave away those assets instead.

As a result, I like to ask people about real estate ownership. In case you are thinking of not disclosing current or prior real estate ownership to your attorney, think again – the trustee can take steps to independently research your property ownership situation and find things out. It’s better for everyone that you disclose everything to your attorney so that they can help you figure out the best course of action before you file for bankruptcy.

If you are in NJ and thinking of filing for bankruptcy, consider calling Jennifer Weil for a free telephone consultation to discuss your financial situation at 201-676-0722.

Photo by The-Lane-Team.