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Foreclosure and Bankruptcy - Should I pull the trigger?

Many Americans fall behind on their payments. Even though the Northern Virginia area was spared the brunt of the economic fallout, many in Fairfax, Alexandria, and other communities are facing the threat of foreclosure. There are many practical considerations as to foreclosure and bankruptcy and when bankruptcy may be right for you.

If a bank has started the foreclosure against your property, filing either a Chapter 7 bankruptcy or a Chapter 13 bankruptcy will temporarily help you keep your house. The court automatically issues an Order for Relief, granting you an automatic stay. An automatic stay directs your creditors to immediately cease their collections attempts. This is a postponement of any foreclosure activity, so if a foreclosure sale has been scheduled for your home, it will be postponed, by law, until the bankruptcy is finalized. This usually takes about three to four months. An automatic stay and the filing of a bankruptcy can be serious leverage against a lender to try and get a loan modification or some other long-term solution that can help you keep your home.

But there are two important exceptions to this buying time rule.

The Lender may file a Motion to Lift the Stay, which asks permission from the bankruptcy court to continue with the foreclosure sale. If the lift stay is granted, you will not have three to four months, but if the lender does not act fast in filing the motion to lift the stay, bankruptcy will still postpone the sale by a month or two or more, letting you stay in your house, catch your breath, and figure out the next steps with our bankruptcy attorneys.

The other exception is when the foreclosure notice has already been filed. Often, there are laws that require lenders to give homeowners a certain amount of notice before selling their property. An automatic stay when you file for bankruptcy will not stop the clock on this advance notice. So if a foreclosure notice has already been filed, even if you file for bankruptcy and receive an automatic stay, the lender could file a motion to lift the stay at the end of the foreclosure notice and ask the court for permission to schedule the foreclosure.

Good communication with your lender can mean the difference between a swift foreclosure and efforts to work out a deal so you can keep your home. Our attorneys at the Vienna Law Group can work with your lender to see if any solutionis possible before you file for bankruptcy and we will be there to help you file your bankruptcy if your lender moves forward with a foreclosure of your home.

A Chapter 13 bankruptcy will restructure your debts and set up a repayment plan to pay off the past due payments or arrearage, but you will need sufficient income to pay both your past due payments and your current mortgage payments. Provided you can make these payments, you will avoid foreclosure and be able to stay in your home. A Chapter 13 bankruptcy can also help eliminate second and third mortgages because these are unsecured loans, unlike your first mortgage, which is secured by the entire value of your home.

A Chapter 7 bankruptcy will discharge your debts almost immediately, but you may still lose your home because when you enter a mortgage, you are agreeing to use your home as a type of collateral in case you default on your payments.

Bankruptcy may or may not prevent the loss of your home, but bankruptcy filing is important for long-term financial planning. Bankruptcy will stop you from losing more money and more of your time, and start building good credit now. If you are facing foreclosure and you are in the Northern Virginia area, whether it's Fairfax or Alexandria or even Prince William County and Warrenton, the Vienna Law Group can help you make the right decision in these difficult times. Our bankruptcy attorneys can help you decide if or when you should file for bankruptcy and make sure you stay in your home as long as possible. Our bankruptcy attorneys work hard to get the best results for you.

Key Facts:

• The foreclosure process takes time and most creditors do not begin foreclosing until the homeowner is two to three months behind. This gives the homeowner time to consider alternatives to foreclosure and bankruptcy, such as loan forbearance, short sale, or deed in lieu of foreclosure.

• An automatic stay can keep you in your home for several months following the filing of your bankruptcy, but lenders can ask the court to lift the stay and proceed with your home foreclosure. Consultations with one of our bankruptcy attorneys can mean the difference between staying in your home for several months and facing immediate foreclosure.

• Good communication with your lender is critical when faced with a foreclosure. Both bankruptcy and foreclosure can be avoided under certain circumstances.

• Filing for bankruptcy may not only provide some breathing room to plan your next moves but provide serious leverage against the lenders to get a favorable resolution such as a loan modification.

• Even if bankruptcy cannot ultimately save your home, it is the first step towards building good credit for the future.

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