What You Need To Know About Foreclosure and Bankruptcy

            One of the most upsetting consequences of financial instability is the threat of foreclosure. When you build a beautiful new home or buy your dream home from the previous owners, you’re not paying in cash. You put down a payment and take out a mortgage – a big loan – to cover the rest. Then you begin slowly paying it off.

A mortgage is just a giant loan – and it’s a collateralized loan, which means that you’ve put something of value up for the bank to take if you fail to pay it back. The “something of value,” in this case, is your home itself – the very thing you needed the loan to buy in the first place. That’s just how mortgages work, of course, and that means that when you fall behind on yours, the bank may try to take your home.

            If this happens to you, you need a lawyer. Your lawyer can help you negotiate with your bank and can help you declare bankruptcy, if necessary. Going into bankruptcy isn’t an easy decision. But if your debts are mounting and you find yourself losing ground instead of gaining it, bankruptcy may be your best option. Of course, no internet article can tell you if you need to choose bankruptcy, and nothing in this article should be construed as legal advice. The only way to get advice specific to your foreclosure issue is to speak to an attorney who specializes in foreclosures. The only way to make an informed decision about bankruptcy is to turn to an attorney who specializes in bankruptcy law.

            With that said, there are a few things you should know about bankruptcy and foreclosure.

Your Bank doesn’t want your House

            Your bank is after your house in foreclosure, but that’s not necessarily what they really want. Banks hold money, not houses. When they foreclose on houses, they sell them. And the houses don’t necessarily fetch good prices. Homeowners who are too broke to pay their mortgages are rarely getting their plumbing repaired, their homes repainted, or their HVAC systems maintained. Some people even trash their homes when they leave (you should not do this, of course – you could easily face legal consequences).

            Foreclosures are not good for banks. They want your money, not your house. They want to be able to tell their investors that they had few foreclosures, not lots. They want to point to a ledger full of ongoing loans!

            All of this means that your bank may be willing to come to the table and work something out for you. A good lawyer may be able to make this happen. Maybe you can refinance your mortgage and stay in your home! The bank doesn’t want to give you free money, but they do want you to keep paying them regularly and for you to show up on their balance sheet as a healthy, active loan. Your bank doesn’t want to see the foreclosure process drag on. They also don’t want to see you forced into bankruptcy (we’ll see why in a moment).

Bankruptcy can halt foreclosure

            Let’s say you don’t reach an agreement with your bank, and your home is foreclosed uon. Here’s the good news: you can generally freeze the foreclosure process by declaring bankruptcy.

            The exact details will depend on your situation and your state, but as a general rule, foreclosure proceedings must be stopped when the homeowner declared bankruptcy. It’s not uncommon to see an owner file for bankruptcy at the very end of the foreclosure process – on the day of the sale. In some states, this means that everything is on hold while the entire bankruptcy process plays out. Then, the foreclosure process has to start over in key ways. In states where these processes are lengthy, this can extend a person’s time in his or her home for years.

The bottom line: get a Lawyer

            Foreclosure is scary. If you can’t afford your mortgage, your bank (well, their lawyers, actually) will tell you it’s planning to take your home. They may give you an information sheet (some states require this), but they’ll otherwise make you feel trapped. “Might as well let them take the house and get it over with,” you might think.

            Don’t. Get a lawyer. Your bank might be willing to take your home quickly and easily, but they’ll likely choose a negotiation over a drawn-out foreclosure process. And even if they don’t want to bargain, you can delay foreclosure with bankruptcy and buy time to get your finances together and pay off your debt to keep your. So don’t get up easily! Turn to an attorney and fight for your home and your financial future.

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