Why Isn’t the filing for Bankruptcy To Stop Foreclosure Not Always The Correct Answer?

The filing of a Bankruptcy will without question stop the foreclosure of your home if filed prior to the scheduled sale. In fact, it will stop all creditors and their efforts to acquire any of your property.

Why then would filing for Bankruptcy relief not be the right choice? First, it is the right choice as often as it is the wrong choice. Most everyone wants to stay in their home and while the filing of a Bankruptcy will stop the sale, that decision might not be the correct one for everyone. You need to thoroughly understand your options and the ramifications of same. This country’s economic crisis has caused many people to make decisions that they would not have made ten years ago. The world and the rules have changed and the need for an attorney who understands the legal nuances has never been more important.

You will discover after meeting with a competent seasoned attorney at Pitts & Burns that there are lots of factors to consider before stopping a foreclosure or filing a Bankruptcy.

There should be lots of thought and planning before you file for Bankruptcy relief. First, have you exhausted all other remedies. If so, then you need to decide whether you want to stop the sale. While that seems like a stupid question, it is not. There are lots of reasons to stop the foreclosure and just as many reasons not to.

Too many people file for Bankruptcy to stop a foreclosure sale because either they have not taken a practical and pragmatic look at their financial situation or they are being guided by misconceptions about foreclosure and Bankruptcy. As to the latter, too many people believe that if the sale goes through that they will be out on the streets the same day. This is just not the case. The mortgage bank or the new owner that purchases your home at the foreclosure sale will need to evict you through the District Court in the State of Rhode Island. This takes time and more often than not, you will continue to reside in your home for months after the sale.

The people who maybe should not be stopping the foreclosure sale are those who have not really considered the following questions:

  1. If I file for Bankruptcy before the foreclosure sale, will that correct my default? No, if you file a Chapter 7 and owe arrearage to the bank, they will file for authorization to start the foreclosure right up again. The mortgage companies in a Chapter 7 are secured and therefore have a right to the security backing their loans: your home. Therefore, the filing of a Chapter 7 is merely a temporary delay. Moreover, the Bankruptcy Court is a Federal Court and the filing of a Bankruptcy in bad faith could result in undesirable results. The Court is not there to stop your foreclosure haphazardly. Once you file a Chapter 7 you are in with very little chance of ever dismissing it if you discover that you made a poor choice.

The filing of a Bankruptcy is very complicated and even most attorneys do not understand it.

2.         When is the right time to file a Bankruptcy? You need to decide what your objectives are. If you are ready to leave your home and discharge your debt, then do not file until after the foreclosure sale. You will have sufficient time to relocate after the sale. The filing of your bankruptcy after the foreclosure allows you to name all creditors associated with the ownership of your home. Therefore, you will have drawn a very definite line allowing you to go on with your life with no concerns of loose strings that might haunt you in the future.

When someone files before a foreclosure sale, their bankruptcy only relieves them of the debt that existed prior to the filing. Therefore, that individual will still have ongoing debt for real estate taxes, municipal services, condominium fees, utilities and the list goes on. Even worse than that, you might find after you stopped the foreclosure that the bank decides not to foreclose. This is happening more and more. People are discharging their debts and leaving their homes to find out that they still own them. As an owner of property you continue to be responsible for ongoing municipal debts and for any accidents that might happen on the property in your absence.

If you can afford your mortgage payments though and just fell on hard times for a while and developed a sizable arrearage with your mortgage company, but are on your feet again, then a Chapter 13 filed before the foreclosure sale is the way to go. The Bankruptcy filing will stop the sale and then through a well-designed financial Plan approved by the Bankruptcy Court, you can pay off the arrearage over time. How much time and how much you will need to pay the Bankruptcy Court will depend on numerous facts that require a full analysis by a competent bankruptcy firm like Pitts & Burns, Attorneys At law. Do not trust your assets and family to the advice of just any attorney.

Filing Bankruptcy Stops Creditors in their tracks

As soon as you bankruptcy gets filed an “automatic stay” goes into place. The “Stay” prohibits debt collectors from making any further effort to collect any debt against you (except for debt owed to the IRS, although, that too can be eliminated in many cases). It stops harassing phone calls, threatening letters, lawsuits, Judgments, bank account levies, wage assignments, foreclosures, and repossessions.  

The automatic stay remains in effect during the pendency of your bankruptcy for most creditors. There are exceptions depending on the type of debt and whether you filed previously.  Creditors do have a right to petition the Court to have this Stay removed, especially if it is a creditor like a mortgage company or automotive loan lender and you are in default or the value of the secured property is not adequate to protect their interests

Keep in mind that unless the creditors are part of the Court’s electronic noticing system, that they will not find out about your filing until they receive notice in the mail. The creditors may not receive the Court’s notices for up to a week after you file. Therefore, Pitts & Burns sends notices out ourselves the same day you file cutting down your exposure to further collection efforts tremendously.

If a Creditor knowingly violates the Court’s automatic stay, we can alert the Court which in many cases results in a reversal of their collection efforts, i.e. taking money from your bank account, and the imposition of fines and payment of our fees.

The power of the filing of a Bankruptcy is massive. You will be relieved of your debt and creditor harassment, so that you can get your life back on track. Like so many of our clients you will say, “I should have done this years ago”, especially, if you elect to have the attorneys at Pitts & Burns help you.

 

What assets will be affected by my filing for Bankruptcy?

When you file for bankruptcy relief, all of your assets become property of what is called the “bankruptcy estate”. That does not mean that you will lose your assets though. It does mean that equitable title to those assets transfer to the Court appointed Trustee for a set period of time. The filing of a bankruptcy requires complete disclosure of all your assets and their current fair market value. While I have never had a case where the Trustee came into your home to do a visual inspection of your belongings, you must be reminded that you are signing a Federal bankruptcy petition with very serious sanctions if you are found to be defrauding the Court. Therefore, we always have you list everything from winter clothes to a broken camera. Then as to values, you must be able to support your assessments as any misrepresentations could lead to a loss of property.

We will aid you in making sure you have not forgotten any of your assets by going over an extensive check list. Some of the assets people do not think about, but are subject to the court’s jurisdiction, are stock in a corporation you own; inheritance; your parent’s bank accounts and real estate that they have added your name to for convenience; claims you have against anyone for damages you incurred in an automobile accident, contract or medical malpractice incident; income tax refunds; life estates; property you received as gifts; life insurance; and, pets.

There are assets that are always exempt, such as, alimony, child support, IRA’s, defined pensions and Term Life Insurance policies.

With that said, declaring you assets does not mean losing them. One of the most important jobs we will be performing is making sure that all of your property is protected, and if not, that you know about it before you file. Most every client will in fact retain all of their personal property and home. How can you be sure of that? Well, there are both State and Federal Laws that protect your assets up to certain amounts and most people fit safely within those protected limits. This is another reason why accurate reporting of vales is so crucial and we do not want to tell you that your car is fully exempt, when in fact it is not because you undervalued it and the Trustee learned of its true value.

The only reasons you would lose your house or automobile then would be in the unlikely case that you have too much equity (note, that in Rhode Island and Massachusetts the equity in your home is protected up to $500,000,00), failed to list a known item or you are not current in making your monthly payments on a secured obligation. Mortgages and automobile loans are secured, and therefore, regardless of the exemptions that protect these items, the secured creditor has a right to its security if you are in default (if you are filing for Chapter 7 relief).

When you receive your Bankruptcy discharge the case is closed and you will own your property once again free of the bankruptcy estate. If though, it is found that you purposely omitted listing any property or you acquire substantial monies within 180 days of filing your Bankruptcy, i.e. inheritance, lottery, etc., these items will be still subject to the Court’s jurisdiction.

This is why it is so important to go to a seasoned bankruptcy law firm like Pitts & Burns so that your life is not disrupted any more than it has been. The filing of a Bankruptcy will bring you relief that you never imagined possible.