The threat of losing one’s home is one thing that can drive a King County household to consider filing for bankruptcy protection.
Falling behind on one’s mortgage payments, and then facing the loss of one’s home to a forced sale, is a scary prospect.
A Washington family already struggling to make ends meet then also has to find another place to live.
They also may have to deal with paying the lender back if there is still a loan balance after the home gets sold. Frequently, with ongoing interest and penalties, borrowers do wind up with a hefty bill, even after the lender sells their home.
A bankruptcy can offer at least short-term protection for the family home
A personal bankruptcy can offer a family short-term protection for their home.
With respect to either a Chapter 7 or Chapter 13 bankruptcy, a filer will generally get the benefit of an automatic stay.
The automatic stay in a bankruptcy will prevent the lender from taking further action toward selling a person’s home.
This can at least buy a borrower some time to negotiate with the bank, reorganize their finances or, at worst, find a suitable place to live.
However, in the long term, a Chapter 7 bankruptcy will not stop a foreclosure proceeding. A lender can choose to wait for the bankruptcy to conclude or can even ask the bankruptcy court for permission to continue with the sale.
Chapter 7 does offer some other important benefits. It can allow a debtor to discharge from other debt that may help them reorganize their finances and work out a solution with the lender.
Also, even though it will not stop the sale of the home, the Chapter 7 discharge does protect the debtor from what is called a deficiency judgment.
In other words, once the bank does sell the home, it would not be able to legally pursue the debtor further even if the sale did not pay off the balance of the loan.
Chapter 13 bankruptcies may provide a long-term solution to foreclosure
Chapter 13 is not feasible for everyone.
However, if a person is willing and able to enter into Chapter 13 and offer a repayment plan, they may be able to protect their home from foreclosure.
They may do so by offering to repay the back payments as part of their Chapter 13 plan. They will also have to continue making their ongoing monthly payments. Chapter 13 plans typically last 3 to 5 years.
If the court approves their plan, and the debtor follows through, they will pay the loan current through the plan and get rid of the delinquent balance.