Using Bankruptcy To Save Your Home

The filing of bankruptcy triggers the automatic stay which stops all creditors from any action to collect their claim — including foreclosure. However, there are a few thins to consider depending on the type of bankruptcy you file.

A Chapter 7 never permanently stops a foreclosure. In Chapter 7 bankruptcy, the stay lasts only as long as the property is not abandoned by the trustee. A creditor secured by the house (mortgage lender) can seek relief from the stay to complete the foreclosure if there is danger that the secured claim will become greater than the value of the security during the bankruptcy.

Since the creditor's lien is not eliminated by the bankruptcy, Chapter 7 provides temporary relief from foreclosure, but no lasting solution.

In contrast, in Chapter 13 bankruptcy the stay lasts as long as the case is pending. Chapter 13 is designed to allow debtors to cure defaults in their home mortgages by paying the arrearage over as long as three to five years.

What Happens When A House Goes Into Foreclosure?

Illinois statutory law provides for two steps in the foreclosure process before the lender can sell the house on the courthouse steps.

The first statutory step is when the homeowner misses four consecutive months of mortgage payments on their first mortgage. At that point the first lender has the legal right to file the Foreclosure Law Suit.

The second statutory step is when the first mortgage lender actually files the Foreclosure Law Suit. The date the suit is actually filed with the court starts the Redemption Period which by Illinois law is seven months. At the end of the Redemption Period if the homeowner has not paid the amount in full or reached some other deal with the lender, the sale would occur.

Understanding The Sherriff's Sale

Foreclosure sales are typically conducted on the steps of the county courthouse. At the foreclosure sale, the lender typically bids the amount that is owed them on the note. Other bidders must top that bid to buy the house.

After the foreclosure sale is concluded, the winning bidder is the owner of the house. Liens that are junior to the foreclosing creditor, typically second mortgages or HELOC lenders, are cut off: that is, they lose their secured lien on the property.

More Details About Chapter 7 And Foreclosure

If you have no equity in your home, a Chapter 7 will allow you to get rid of the mortgage and second mortgage or HELOC.

Many homeowners continue to live in their home after their bankruptcy and as their mortgage and HELOC's have been eliminated, they live "payment free" until the Foreclosure Sale actually happens, which, with the help of a foreclosure defense attorney, can be for 18 months or longer.

Further Details Under Chapter 13

If you fall behind on payments, and have some equity in your home, Chapter 13 bankruptcy may be a better choice for your because it allows you to pay off the arrearages (past-due mortgage payments) over time and therefore face less risk to losing your home to the trustee. A critical consideration in a Chapter 13 case is whether a debtor whose home loan is in default can make the larger mortgage payments (the missed payments plus the arrearages) over the repayment period (three to five years).

Contact A Skilled Attorney To Learn More

Saving your home from foreclosure requires careful thought and guidance. For a free consultation with an attorney to discuss how bankruptcy could help save your home, please call 630-296-5084 or 800-599-2152 toll free. You can also contact our firm online.