Bankruptcy and Foreclosure:

What can bankruptcy do if you are in foreclosure on your home?  There are a number of possibilities here.  First, if you do not wish to keep your home, bankruptcy can usually keep the mortgage holders from asking for more money after they get the house back if you qualify for a chapter 7 case.  If you file chapter 13, any balance on the mortgage would be treated the same as credit card or medical debt, and would share, usually a small payment back to them over the 3 – 5 year chapter 13 time period.

There are also options if you wish to keep the home.  If the problem causing you to get behind on the mortgage was temporary, and your income has returned to normal, you can almost always do a ‘cure and reinstate’ plan.  This is one where you take whatever amount you are behind as of the date the bankruptcy is filed, and catch up that amount over a 3 to 5 year bankruptcy plan.  You would also pay in the regular mortgage payment in the plan, as well as a trustee fee.  While this requires you to pay more than the initial mortgage payment, there is no ability for the mortgage holder to reject this option if you can afford the payments.  The bankruptcy does have to be filed before any foreclosure sale in order to take advantage of either option to retain the home.

If your income is not enough to do the ‘cure and reinstate’ option then you may be able to modify the mortgage through the court’s mortgage modification mediation options.  Under this option the court requires you to pay the lower of 31% of your gross income or the regular mortgage payment while attempting a mediation toward modification of the mortgage.   The mediation program as set up by the bankruptcy court has a substantially higher success rate than the mortgage modification program through the state court, as there are special provisions to ensure the mortgage doesn’t claim they did not receive the necessary documents, and the mortgage is required to have someone available that can actually modify the mortgage.  The ultimate success of this mediation does depend on reaching an agreement with the mortgage company, but can often lead to lower payments, lower interest rates, and sometimes even reductions in the principal balance.   Again, the bankruptcy must be filed before any foreclosure sale.

If there are two mortgages on the property, and the value of the property is less than the amount of the 1st mortgage then it is usually possible to remove the 2nd mortgage, and have that mortgage treated the same as credit cards or medical bills, with a usually low or minimal payment back over time.  This can create substantial savings long term.

In the rare case where the final payment on the mortgage is due within 5 years of the date the bankruptcy is filed, there are more options, including possibly reducing the debt to the value of the property (which might be a possibility if there is a balloon payment on the mortgage) or possibly reducing the interest rate on the mortgage.

Finally, there may be even more options if the owner of the property is a farmer or fisherman, or if the property is not the homestead of the owner.

It is important to consult experienced, board certified counsel who are familiar with all the options before deciding how to stop a foreclosure through bankruptcy.

Michael Barnett, Esq.
Michael Barnett, PA
506 N Armenia Ave.
Tampa, FL 33609-1703
813-879-3100