With so many people losing their homes these days, I wanted to share some information about using to the bankruptcy system to help someone stay in their home instead of doing a short sale or a Foreclosure.
Every situation is different.
Since I work as a bankruptcy consultant/paralegal at a law firm, and I also am a Realtor I am finding that my knowledge in Foreclosure and Bankruptcy has come in play with my real estate business when I normally can keep the two separate. But with all the foreclosures these days and mortgage issues, I am finding myself making decisions for homeowners that require my legal knowledge and my real estate knowledge .
For Example: Homeowner comes to me for possible short sale. Three payments are missed. The family prefers to stay in their home, children already in school, etc. Mortgage changed, job loss, etc. has now made the homeowner unable to afford the home he has. There is negative equity ($90,000) so refinance was out of the question. Homeowner gains employment again and is now able to make the payment but now home is in foreclosure and the cure amount is four months worth of payments, interest, and attorney fees. I then make the decision to prepare a Chapter 13 Bankruptcy Petition, (through the law firm I work at) file it with the court, then called the Attorney handling the Mortgage Co.’s interest and told him that foreclosure cannot go forward because I filed Bankruptcy for our client and ‘automatic stay” goes in place which means that all actions from creditors must stop. Creditors cannot contact our client, now called the “debtor” while he is in Bankruptcy without permission from the Debtor’s Attorney. In the meantime, I prepare the plan which gets approved by the Bankruptcy trustee to include missed mortgage payments called the “cure” amount. Now the debtor/homeowner continues to stay in their home and catches up on their mortgage through the Bankruptcy Court, continues to make their regular payments and their kids don’t have any interruption in their life at this time.
There is a little more that goes on through this process, but I wanted to give everyone an idea of an option that may work instead of a short-sale or a foreclosure which was probably going to be the end result in this situation if this homeowner decided not to seek legal advice.
Before this family came to me, they spoke to their real estate agent who wanted to list their home on the market for a short sale, since that is the way he could have helped them, but he made the suggestion for them to seek advice from an Attorney just see if other options were available to them. He may have lost the listing but gained more from this family then money. I am sure when they are ready to move, they will use that same agent, because he worked with them in helping with their situation.
In the end, the Family was happy and relieved that their hardship was over for now and they could live their lives without worrying about their home going to the auction block.
If there is interest in this blog from everyone, I will post more on this subject and give more examples of scenarios and suggestions on handling them. I have prepared hundreds of bankruptcy petitions of all Chapters and if anyone has questions about them, I will try my best to give you answers that may help in situations you may have with your clients.
Please note, I am not giving legal advice. I am not an Attorney. I am just sharing my experiences.
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Short sale is a great tool if the client can move to another home. BK is good if the client has some equity and can not afford to move out. Of course foreclosure is never good.