Using Bankruptcy To Save Your Home
Filing for bankruptcy gives you the powerful benefit of an automatic stay, which stops creditors from continuing collection actions – including foreclosure. However, there are a few things to consider depending on the type of bankruptcy you file. Linda Bal & Associates can help you assess which type is right for you and what to expect during the process.
A Chapter 7 never permanently stops a foreclosure because it does not remove the creditor’s lien on the property. What Chapter 7 bankruptcy does provide is valuable time for you to figure out alternative housing and your financial options.
Your equity in the home affects whether the trustee will sell it to pay for other debts. In Illinois, the homestead exemption protects up to $15,000 of equity in a home for individual filings and $30,000 for joint filings of married couples.
If a debt is secured with your house, as a mortgage typically is, the creditor can seek relief from the automatic stay. The court may decide to allow the foreclosure to proceed in Chapter 7 bankruptcy.
When filing for a Chapter 13 bankruptcy, however, the automatic stay will remain throughout the process. Because Chapter 13 gives you a chance to catch up on payments, you can work toward a plan to pay the arrearage (past-due mortgage payments) to keep your home.
What Happens When A House Goes Into Foreclosure?
Illinois statutory law has two steps in the foreclosure process before the lender is able to sell the house.
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 lawsuit.
The second statutory step is when the first mortgage lender actually files the foreclosure lawsuit. 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 foreclosure sale would occur.
Understanding The Sheriff’s Sale
Foreclosure sales are usually done on the county courthouse steps. During the sale, the creditor usually bids according to the value of the debt. However, other parties may bid a higher amount to purchase the property.
The party who wins this sale will take possession of the house. Other creditors who had lower-priority liens on the property, such as a second mortgage, lose their right to claim a value of the property. It does not, however, erase the debt that the previous owner has yet to pay them.
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 could be a better option for you because it allows you to pay off the arrearages over time. This means the risk of you losing your home to the trustee decreases. A significant matter in a Chapter 13 case is if a debtor whose home loan is in default can make the increased payments (the missed payments plus the arrearages) over the repayment period, which is usually 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 630-912-5970 or 800-599-2152 toll-free. You can also contact our firm online.