Does Declaring Bankruptcy Affect Your Mortgage?

Bankruptcy and your mortgage.

The short answer is “yes”. Bankruptcy can affect your mortgage in multiple ways depending on the type of bankruptcy you file for.

Sometimes bankruptcy is the only reasonable option you may have available in order to gain control over your financial situation once again.

Before you file, it is important to consider how it will affect your mortgage.

• If you are overwhelmed with debt, you may not be able to make your mortgage payments on time. If this is your case, your lender may start foreclosure proceedings against you. This mean the lender is allowed to seize your home to make up for the remaining balance you owe on your home. When you declare bankruptcy, you can stop a foreclosure. The court will impose an automatic stay on all your creditors, preventing your creditors from taking legal action against you during bankruptcy.
• The type of bankruptcy you file for will affect your mortgage liability. When filing for Chapter 7, you are usually discharged of your outstanding debts. Because your mortgage loan is secured by your home, however, your debt to your mortgage lender cannot be satisfied while the home remains in your possession. Depending on the equity in your home, you may be able to keep it after declaring Chapter 7 bankruptcy. In some cases, however, the court may decide your debt can be handled more efficiently by selling the property. When this happens, the court will repay your mortgage lender and any remaining proceeds of the sale will be used to pay off your other creditors.
• Once your debts are paid off and your mortgage payments do not place a financial strain on you, the court may grant you the option to reaffirm your mortgage through bankruptcy. This is usually only possible if your mortgage loan is still current.

Do you have questions about the repercussions of filing for bankruptcy? Please call our office at 951-461-2500.

Eviction, Automatic Stay, and Bankruptcy

When filing bankruptcy, the debtor has the ability to gain an automatic protection against litigation and other collection efforts.

When a landlord evicts a tenant, they must first receive a court order from a district court. An eviction process cannot immediately start if the tenant misses a payment. Once the landlord has waited through any payment grace period mentioned in the rental agreement, he then can send the tenant a notice to quit. This notice to quit terminates the lease unless the tenant can pay the back rent by the time the notice period ends. In most cases, the only way an eviction will involve bankruptcy is if the eviction deals with the tenant debt.

Once the termination process expires, the eviction process begins when the tenant refuses to leave the home. A tenant may delay the eviction process as long as he files a bankruptcy prior to a court order in the eviction case. A bankruptcy filing after the court order will do nothing to stop the physical eviction. At that point the court has spoken and the case is no longer in litigation.

When you file a bankruptcy, an automatic stay immediately goes into effect that, in most cases, prohibits your creditors from contacting you or continuing their collection efforts.

Keep in mind, a bankruptcy does not permanently stop an eviction; it only delays it until the landlord can get the stay lifted from the eviction process.

If you have already filed a bankruptcy before your landlord has obtained a judgment for possession of the property, then the automatic stay stops the landlord from starting the eviction proceedings or giving you a termination notice.  However, be aware that your landlord can file a motion for relief from the automatic stay to proceed with the eviction.  Bankruptcy judges will usually grant the landlord’s request unless you have a compelling reason why the eviction should not go forward.

If you are in the eviction process and would like to know more about how you can stay in your home, please contact the law offices of Page, Lobo, Costales and Preston at 951-461-2500.