Bankruptcy and Home Foreclosure in Arizona
Foreclosure is the process by which financial institutions recoup money from homeowners who are unable to make their mortgage payments. Unfortunately, home foreclosure has become highly relevant in today’s economy. When homeowners fail to make mortgage payments, lenders can auction the home and use the proceeds to recover what they put into the property. Where the auction proceeds are insufficient to cover the investment, the court can issue a deficiency judgment, requiring the homeowner to repay the remainder of the balance from personal funds.
What If My Home Is In Danger of Foreclosure?
If your home is in danger of being foreclosed upon you should do your utmost to prevent this from happening. If you are in short-term financial straits you have many alternatives when seeking a remedy. Potential solutions include borrowing from family or friends and refinancing your home at a lower interest rate. Likewise, speaking with the lender about working out a plan can also be helpful. If you run into long-term financial difficulties, however, filing for bankruptcy may be your best alternative.
When to Consider Bankruptcy
Many people fail to consider bankruptcy as a solution despite it being an extremely viable alternative. This is unfortunate because when choosing between filing for bankruptcy and losing your home, the ramifications of bankruptcy can seem miniscule. The foreclosure process generally takes several months. This provides ample time to develop a plan to remain in your home. While filing for bankruptcy might not be your first course of action when faced with home foreclosure, it pays to keep it in mind as a possible alternative.
What Happens if I File Bankruptcy?
Immediately upon filing for bankruptcy the court issues an automatic stay. If your home is scheduled for foreclosure the automatic stay requires that the sale be postponed during the bankruptcy proceeding. Most times a bankruptcy proceeding lasts for up to four months, so this buys you a significant amount of time to make financial arrangements.
Lenders can get around an automatic stay by filing a motion to lift the stay. If the court grants this motion, the lender may be able to sell your home before the bankruptcy matter is resolved. Nevertheless, the foreclosure will still be postponed because it generally takes time for lenders to pursue a motion to lift an automatic stay.
Simply filing for Chapter 13 or Chapter 7 bankruptcy provides you with the protections of an automatic stay. However, an automatic stay merely postpones foreclosure unless you are able to make financial arrangements while your creditors are held at bay. You may be able to avoid foreclosure altogether by filing for Chapter 13 bankruptcy.
Chapter 13 and Home Foreclosure
Chapter 13 involves creating a restructuring plan. This plan allows many debtors to create an arrangement by which they can pay their back mortgage payments over time and remain in their home. With the assistance of an Arizona bankruptcy attorney you can create a plan to pay off your debt within a five-year period. The main requirement for filing Chapter 13 bankruptcy is that you have enough regular income to cover your monthly expenses as well as the payments required under the restructuring plan. This means that you must be able to pay your monthly mortgage payments on time and stay on top of paying off debt according to your plan.
Chapter 13 and 2nd Mortgages
It is not uncommon for people to realize significant losses in the value of their homes. If you have a second mortgage and your first mortgage is secured by the entire value of your home due to devaluation, you may be able to utilize Chapter 13 to eliminate the payments on your second mortgage. This is because there is not enough equity in your home to secure both mortgages so the second mortgage can be reclassified as unsecured debt. In a Chapter 13 restructuring plan unsecured debt takes last priority and can sometimes go unpaid.
Chapter 7 and Home Foreclosure
Even if home foreclosure is unavoidable, filing for Chapter 7 can help you postpone the sale for a period of time. If you are unable to make mortgage payments after the court issues an automatic stay, you can save your money for payments on your future residence. Moreover, Chapter 7 cancels all debt that is secured by the home so any mortgage or home equity loan will be discharged during the bankruptcy proceeding.