The word “foreclosure” is one of the few words that causes more people to cringe than the word “bankruptcy.” A foreclosure first enters someone’s mind when he or she receives an Act 6/91 Notice, or the sheriff stops at his or her door to serve a foreclosure complaint. We often receive calls when one of the two things mentioned above happens because people want to know how long they have to live in the property before the bank takes the house and everything inside. If you just received a demand letter, notice, or you were served with a complaint, a foreclosure is not going to occur for several months and you have time to resolve the debt. However, we highly recommend setting up an appointment to review your situation and determining the best course of action.
So How Do I Keep My House?
The first question you should always ask yourself and be prepared to honestly answer is, “how much can I afford to pay per month?” While a bankruptcy, a loan modification, or other workouts are useful tools to get back on track with your payments, there is little benefit to them if you cannot make a payment.
If you file a bankruptcy, an “automatic stay” is immediately created at the moment your bankruptcy petition is filed. This means that creditors that are calling you, sending you letters, or suing you must stop. This also applies to a foreclosure. If the bankruptcy is filed before the sale of the property, the sale is “stayed” and cannot occur unless permitted by the Bankruptcy Court or Bankruptcy Code.
If you file a bankruptcy in order to stop a sheriff sale, you will most likely file a chapter 13 bankruptcy. A chapter 13 bankruptcy provides you with the opportunity to payback the arrearage on your mortgage over the course of a 3-5 year monthly payment plan. The amount you must pay per month is calculated by your disposable income (income minus expenses). Under a chapter 13 plan, you have the opportunity to include other debts into the plan, such as car payments, taxes, and domestic support obligations. At the end of the payment plan, you would then receive a discharge of all dischargeable debts, including unsecured creditors such as credit cards, medical bills, and personal loans.