Help Me Save My Home! Foreclosure Prevention in Bankruptcy
Three years ago, I got a call from a client named Steve. The call came in at 9:27AM. “Mr. Waltzer, my house sale is at 11AM today! I have a new job and can finally catch up on the mortgage arrears, but the bank won’t work with me, please help!”
“Steve”, I said, “you have to act fast, but we can stop this sale”.
Steve would have taken over an hour in traffic to get to our office and we didn’t have that luxury of time. We had him send us his paperwork quickly. He sent us copies of his ID, Social Security Card, Foreclosure Papers, and a few other things that we generally need. We sent him his credit counseling course, which he did right away on the phone while driving to our office. We did as much of his paperwork as possible and sent him the paperwork to sign. By the time he got to our office his paperwork was ready and he signed it all.
We filed his Chapter 13 bankruptcy case at 10:41 AM, just 19 minutes before the sale and we stopped that sale.
Now, three years later, Steve is finishing his Chapter 13 bankruptcy. He is all caught up on his mortgage and got rid of $23,000 of credit card debt also. Starting in a few months he will be free of it all and will just have to keep up with his regular mortgage payment.
That is a Chapter 13 bankruptcy.
Even if we filed the case at 10:59, (one minute before the sale) we would have stopped the sale. So long as you file before the sale, it is stopped.
However, there are some situations where Chapter 13 will not stop the sale. One example is a repeat filer. If you file bankruptcy in September, and your case fails in December, then you file again in January, and your case fails in May, then you file again in June, technically speaking, the bankruptcy protection does not work. This is complicated and if you have filed bankruptcy previously it is imperative that you have an expert bankruptcy attorney advise you on what protections will exist and will not exist with your next filing. Sometimes you can only get 30 days of protection, sometimes you get none. You must get professional advice.
But for most people, bankruptcy will stop your foreclosure sale.
But Can It Save My Home?
Stopping the sale temporarily and saving your home are two very different things. Sadly, there are many cases where a Chapter 13 bankruptcy prevents a foreclosure sale only temporarily. Six months or a year later, the house is lost. The only way to truly SAVE YOUR HOMEis to actually reorganize on the back payments and stick with the plan. In Chapter 13 there are many tools to help you do this.
Let’s say you have a $350,000 mortgage. You pay about $2200 per month but you missed payments for 10 months. Now you have $22,000 in arrears (missed payments). You can’t come up with all that money but you don’t want to lose your home.
Saving your home requires you to do one of the following things:
Chapter 13 repayment
Do a straight Chapter 13 repayment plan in such a plan you would repay the $22,000 in a bankruptcy plan (probably costing about $350 to $450 per month for five years). AND THIS IS IMPORTANT… While you are doing the payment plan you must ALSO stay current on your regular mortgage payments. So, where your old monthly outlay was $2200, it is now about $2600.
This plan works if you had a TEMPORARY reduction in income. But if you lost household income and just can’t afford $2200 per month, you certainly won’t be able to afford $2200 per month PLUS the bankruptcy plan payment of $400.
If you can’t afford the regular mortgage payment than you need to consider option B: loan modification (or loss mitigation).
Loss Mitigation or Loan Modification
This is when you file bankruptcy and attempt to get the bank to lump your back payments and future payments altogether so that you just have one lower payment every month. If you had a hardship that reduced your household income, this is the path for you. But beware- the banks are not obligated in all circumstances to give you a modified mortgage payment. They are only obligated to act in good faith (which they rarely do because most banks these days are disgusting behemoths that are unreasonable, disorganized, dishonest, and too big- but that is a discussion for another time). Whether your bank can be ‘tamed’ to give you a fair shot at loan modification depends on where you file bankruptcy.
Some judges really step up to enforce the law to the letter and hold banks accountable for violations. We have great judges for this in NY, particularly Poughkeepsie, White Plains and Manhattan bankruptcy judges. But some judges don’t want to be involved and they don’t hold the banks feet to the fire. I had a judge in Manhattan once demand that the CEO of Deutsche Bank US fly here from Texas and answer his questions. That was so empowering. But the more common story is of borrowers and attorneys struggling to deal with banks that just play games and waste time and do everything they can to avoid giving a homeowner a break.
But in Chapter 13 bankruptcy, you have much better chances than outside of bankruptcy for getting a loan modification that lowers your monthly mortgage payment and allows you to save your home.