Filing a Chapter 13 Bankruptcy Will Stop a Foreclosure Sale

Yes, it’s true.  A Chapter 13 bankruptcy will stop a foreclosure sale.  Chapter 13 bankruptcy is the Swiss army knife of the bankruptcy world.

Although it seems kind of weird to get excited about the power of a Chapter 13 bankruptcy, when I started my career as an Omaha bankruptcy attorney in 1989, I was immediately drawn to the super powerful tools available for people who filed a Chapter 13 bankruptcy because it could help so many people and families save their home, save their vehicle, get out of tax debt, stop lawsuits and basically get their life back without losing the things that mattered most to them.

Although a Chapter 7 bankruptcy is a good option for some, a Chapter 13 is really a much better choice in many situations.

For example, to save your house from foreclosure, a Chapter 13 bankruptcy is the way to go, not Chapter 7.

Homeowners in Nebraska are typically faced with fast-tracked foreclosure laws that do not require a judicial proceeding. This means that you can lose your house at a foreclosure sale without being sued. Everything is handled privately with the mortgage company’s foreclosure attorney.

• You are first sent a certified letter called a Notice of Default. You generally have 30 days to bring your mortgage payments current.
• And if you fail to do that you then receive a Notice of Sale. Bankruptcy attorneys call this a foreclosure sale date.

What is worse is that this all happens within a short period of time. In fact, it is possible to lose your home in foreclosure in as little as nine (9) weeks. Although the process usually takes longer than that, a mortgage company could truly take your house back in that time frame.

Since the 2008 financial crisis, many homeowners have been attempting to negotiate loan modifications on their mortgage. This can be a great thing if you are approved but my observation as a bankruptcy attorney in Omaha is that very few people actually qualify. What is worse is that mortgage companies lead you on until it is too late to file a Chapter 13 bankruptcy.

That said, you can, in certain circumstances, still apply for a loan modification even after you file Chapter 13 and then adjust your Chapter 13 Plan, possibly convert to Chapter 7 or just dismiss your case.

Mortgage lenders keep stalling and requesting the same documents and information over and over again. Then, at the very last minute, they tell you that you don’t qualify and foreclose your house very shortly thereafter. Seriously, as an Omaha bankruptcy lawyer, I have seen this over and over again.

My bankruptcy advice to people in this catch-22 situation is to continue aggressively with the loan modification process but also prepare to file a Chapter 13 bankruptcy to stop the foreclosure sale as a backup plan. In other words, have a Plan B in place in case your mortgage company denies your request for a loan modification or debt workout plan.

At the very least, meet with a Chapter 13 bankruptcy attorney to learn what you need to do to file a Chapter 13 bankruptcy at the last minute. Initial bankruptcy consultations are provided free of charge and they are totally confidential.

Foreclosure vs. Bankruptcy Which is Worse?

Foreclosure is a devastating process with far-reaching consequences. Losing your home is not only a financial catastrophe but can also lead to significant emotional distress. Beyond the loss of shelter, foreclosure can have some harmful effects.

Negative impact on your credit score: Foreclosure can severely damage your credit, making it difficult to obtain loans or credit cards in the future.

Difficulty securing future housing: Landlords and mortgage lenders often view foreclosure negatively, making it challenging to find suitable housing.

Potential for deficiency balance: If your home sells for less than the outstanding mortgage balance, you may still owe the difference, known as a deficiency balance.

Filing Chapter 13 bankruptcy can often present a more manageable path compared to foreclosure, in particular, it can offer several potential benefits:

Temporary relief from creditor harassment: Bankruptcy automatically stops collection efforts, providing much-needed respite.

Catch up on mortgage payments: Chapter 13 allows you to create a repayment plan that includes your mortgage arrears, potentially saving your home.

Modify mortgage terms: In some cases, bankruptcy can lead to a mortgage modification with lower payments or extended terms.

Eliminate or reduce other debts: While not always possible, Chapter 13 can help you manage and potentially eliminate other debts, improving your overall financial situation.

It is always important to remember that while bankruptcy is not without its challenges, it often can serve as a preferable alternative to the consequences of foreclosure.

You are Not Alone, We Can Help

Filing any bankruptcy is never anyone’s first choice and nobody wants to file bankruptcy if there are other options. But, sometimes life’s events create situations where filing a Chapter 13 bankruptcy is the very best option. Chapter 13 bankruptcy works!  And, it works fast. There are many, many other features only available in a Chapter 13 bankruptcy that can truly help if you are in a bad way financially. More foreclosure prevention information is available on our website.  Our team of Omaha bankruptcy lawyers is here to help! Contact us for a free consultation today.