Using Chapter 7 to Stop a Mortgage Foreclosure

22 Aug Using Chapter 7 to Stop a Mortgage Foreclosure

Although most persons filing bankruptcy will opt to use chapter 13 to stop a mortgage foreclosure, it’s important to remember that filing bankruptcy under any chapter, including chapter 7, stops a foreclosure just as effectively. Chapter 7 not only stops a mortgage foreclosure, but it usually results in the discharge of almost all unsecured debts, without the necessity of committing to a years-long chapter 13 debt repayment plan. This makes chapter 7 an attractive option for those facing foreclosure, but lacking the income needed to propose a feasible chapter 13 plan.

While the filing of a chapter 7 bankruptcy case stops a mortgage foreclosure, it does not provide a long-term solution to the problem of how to catch up on past due home mortgage payments. Even though chapter 7 stops the foreclosure, the effect is only temporary. In most federal court districts the delay of foreclosure proceedings obtained through chapter 7 consists of only about two to six months. To avoid the foreclosure process being started all over again after filing chapter 7, the past due mortgage payments must be caught up soon after filing the case in bankruptcy court.The delay of foreclosure proceedings obtained through filing a chapter 7 case can be a valuable benefit. Much can happen during such a delay; for example, improved employment prospects resulting in more income, an unemployed spouse could find a good paying job, or relatives could find a way to loan the money needed to catch up the mortgage payments on favorable terms. Also, it might be possible to file chapter 13 shortly after the conclusion of the approximately one hundred-day long chapter 7 case, because there is normally no bar to successive bankruptcy filings. Such a chapter 13 filing, coming on the heels of a chapter 7, is greatly simplified by the absence of all the debts which have just been discharged in the chapter 7.

Even in a situation where the home will eventually be lost to the foreclosure process, the ability to remain in the home longer through a chapter 7 bankruptcy filing is itself significant, simply because the debtor benefits from not having to move from the home as quickly. If you are facing foreclosure and chapter 13 does not seem appropriate for you, talk to your bankruptcy lawyer about filing a chapter 7 instead.

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Craig W. Andresen is a consumer bankruptcy lawyer in Bloomington, Minnesota, with 22 years’ experience in consumer and small business bankruptcy cases. He is the Minnesota chair of the National Association of Consumer Bankruptcy Attorneys, and is a member of the Minnesota State Bar Association’s Bankruptcy Section. Mr. Andresen lectures often on the topic of consumer bankruptcy at local and national legal seminars.
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