Tuesday, July 15, 2014

Bankruptcy and Foreclosure

So you haven’t been able to pay your mortgage. In Ohio, as in America, we really believe in the sanctity of a person’s home. That is why we have a very extensive process of foreclosure before you can lose your home. To handle these difficult situations, you need to be educated on several different aspects of the process.  

1. Learn About the Rules of Foreclosure
To learn details about how the foreclosure process works in Ohio, see this website: http://www.savethedream.ohio.gov/index.aspx. This website will explain things better than I ever could. Meanwhile, bankruptcy provides a few tools for dealing with foreclosure. There are two main types of bankruptcy that individuals generally consider: chapter 7 and 13.  

2. What if you Get Into an Emergency Situation?
Bankruptcy rules can possibly help you if you get into a financial emergency. Before you consider bankruptcy, you should understand the difference between secured and unsecured debt; and how it is treated in bankruptcy. Here are a few things to understand:

·        Secured debt means that the creditor can take some property from you if you don’t pay the debt. That means that the property is collateral on the loan.

·        Unsecured debt means that there is no collateral on the loan or that there is nothing the creditor can take from you, simply because you didn't pay. Rather than take property from you, the creditor will have to go through the debt collection process. This generally involves filing notices on your credit reports and filing a law suit. 

The company that provides your mortgage is a secured creditor and your debt under the mortgage is a secured debt--meaning they can take the house from you if you don't pay them what you owe. Under bankruptcy law, secured creditors have more rights. Generally, they can either demand to be paid or take the property back. Debtors have three choices: 1) redemption (basically a refinance), 2) reaffirmation, and 3) surrender. 

The surrender option is the most powerful. This option gives the bankrupt debtor the option to: 1) discharge the debt owed, and 2) get out of the contract. This is a good option if the debtor is willing to give up the property and start over somewhere else.

Reaffirmation means that the debtor wants to continue making payments and keep the property. However, the creditor does not have to reaffirm if the debtor is not keeping up with payments.

Chapter 7 and Foreclosure
A Chapter 7 is a relatively quick bankruptcy process that eliminates most debt types and usually only takes a few months. If you are going through the foreclosure process on your home, Chapter 7 can slow it down, but it can only stop it if you have a way of catching up on the payments you owe.

The filing of a bankruptcy will institute an “automatic stay.” This stay forbids creditors from attempting to collect a debt without court permission. If you are not caught up on your mortgage, you can bet the mortgage company will ask the court for permission to re-institute the foreclosure. If you are not caught up on your mortgage, they’ll probably get that permission. However, the stay gives you some time to catch up—which gives you a good chance of reaffirming.

Chapter 13 and Foreclosure
Under a chapter 13 bankruptcy, the debtor will get into a payment plan. As part of this plan, the debtor will pay the unpaid payments on the mortgage, while continuing to make current mortgage payments. Basically, this option gives you an opportunity to pay the mortgage payments over a longer period of time. Meanwhile, the process will allow you to ultimately get your unsecured debt under control, so that you can afford the payment plan.

Chapter 13’s are very complicated and require an attorney’s consultation to fully understand.

Please feel free to contact our law office for more information. 
(614) 284-4394


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