Can Filing for Bankruptcy Stop a Foreclosure?
According to statistics compiled by Epiq Bankruptcy, the leading U.S. supplier of bankruptcy statistics, data provided by the United States Courts showed that bankruptcies declined nationwide by 6.3 percent in 2022 from 2021. However, data from January 2023 showed a 19 percent increase from January 2022, followed by an 18 percent increase year over year in February.
Bankruptcy is a legal process to clear most unsecured debts either by paying them off under a reorganization plan, known as a Chapter 13 filing, or through Chapter 7 wherein your debts can be discharged, if you qualify.
Chapter 13 is also known as the “wage earner’s plan” because it relies on your disposable income – what’s left after you’ve paid all the essentials of life – to repay creditors over three to five years.
However, if you’re also behind payments on your secured obligations (for instance, on your home), filing for Chapter 13 provides more options to keep your residence. If you file under Chapter 7 and are behind in payments, there are options to delay, sell, or refinance your residence.
If debt is overwhelming you in or around Baton Rouge, Louisiana, and foreclosure looms or is already in process, contact the bankruptcy attorney at the Hoke Law Firm.
Bankruptcy can give you a fresh start in life, and we will work with you on resolving your foreclosure issue in the best way possible to help you strive to retain your residence. We also proudly serve clients in New Orleans, Lafayette, and neighboring areas of Louisiana.
How Foreclosure Works in Louisiana
Both federal and state laws govern the foreclosure process in Louisiana. When you purchase a piece of property, you generally must sign two documents – a promissory note and a mortgage.
By signing the promissory note, you agree to repay the lender according to the stated amount and terms. The mortgage gives the lender a security interest in the property and will include a “confession of judgment,” which gives the lender the right to take back the property if terms are not met – in other words, the right to foreclose.
If you miss a payment (or more) after the grace period has expired, which is usually 10 or 15 days after the stated due date, the lender can attach late fees and attempt to collect the amount due. Federal law requires the lender to contact you or attempt to contact you 36 days after each missed payment to offer “loss mitigation.” This means a potential restructuring of the loan so that you can catch up.
After 45 days, the lender must inform you, in writing, of your loss mitigation options and assign someone to help you. Federal law also forces the lender to wait at least 120 days after the loan has fallen arrears before starting foreclosure proceedings. Using the confession of judgment mentioned above, the lender can then file a petition in court, and the court can order the property seized and sold.
Of course, that doesn’t mean they can come to evict you that afternoon and then sell your property. The sheriff must issue two documents – a notice of seizure and a notice of sale. You, the homeowner, receive the notice of seizure, which informs you of a pending sale. The notice of sale must be published twice so that interested parties can learn of the upcoming sale. The sheriff must wait at least 60 days after the court order to schedule the sale.
If you look back over the process, the whole foreclosure cycle will generally take at least 180 days, during which time you can pursue your bankruptcy, mitigation, personal sale of your property, and other options. However, there are some circumstances where the process can be expedited.
How Bankruptcy Can Help in a Foreclosure: The Automatic Stay
Either type of bankruptcy will come with what is called an automatic stay, which prevents creditors from contacting you or continuing to try to collect debts. For unsecured creditors, including credit card companies and even hospitals, the stay is pretty permanent, but for secured creditors, they can ask for the stay to be lifted so they can proceed with a foreclosure or repossession.
If you’re behind and facing foreclosure, a Chapter 7 liquidation’s initial benefit is to give you some extra time due to the automatic stay to figure out what to do – sell your property before the lender can, work with the lender on loss mitigation, or come up with money to cover the amount due.
Also, Louisiana bankruptcy law allows exemptions for equity in your home. That amount is $35,000. This means that you are allowed to protect this sum if there is a liquidation sale under your Chapter 7 filing.
Chapter 13: More Options to Avoid Foreclosure
Under Chapter 13, if you are behind in your mortgage payments, there is the possibility of including that past-due amount in your reorganization plan and paying it off over three to five years until you qualify for a discharge.
Of course, you will also have to keep up with your regular monthly mortgage payments. You may, however, be able to work with your lender on loss mitigation to obtain more favorable terms in the length of the loan or in the monthly payment amount, but you need to move before the lender requests the automatic stay lifted.
Solutions-Oriented Legal Counsel
When you are facing debt obligations that are out of control, and your property could be foreclosed, you need to act quickly and weigh all your options. Come in and consult with us immediately when that threat looms or before your debts start getting out of hand.
We will discuss your financial situation and explain your options under the bankruptcy code. If you’re in Baton Rouge, New Orleans, Lafayette, or neighboring communities, reach out immediately to the Hoke Law Firm and schedule a free consultation. Your fresh start awaits.