How To Avoid A Foreclosure By Filing For Bankruptcy In New Jersey
One of the most stressful and traumatizing events that can occur is losing your home to foreclosure. If you are unable to make your monthly payments to your bank, it can decide to seize the property and you could lose it all.
However, you can delay or even stop the foreclosure entirely by filing for bankruptcy – though this has its own share of risks, complications, and requirements that are important to understand before doing so. This article includes key questions for homeowners facing foreclosure to help decide if bankruptcy is the right solution for them, and how to use it, notably:
- How filing for bankruptcy in New Jersey can help avoid a foreclosure.
- The role and potential of different bankruptcy Chapters, including 7 and 13, in stopping a foreclosure.
- How future mortgage payments and requirements will need to be handled during or after a bankruptcy filing.
How Can Filing For Bankruptcy In New Jersey Help Avoid Foreclosure On A Property?
Filing for bankruptcy is the ultimate (temporary) defense against foreclosure because of the automatic stay. This rule, under 11USC3602 of the bankruptcy code temporarily prevents any action on the foreclosure against the property. But be careful, that is not a permanent benefit you are entitled to.
You will have to, as part of your bankruptcy plan, either maintain the regular payments owed to the bank or propose a reasonable adequate protection payment, which would prevent the secured party from having a diminution in the value of their lien while the case is pending. If you do neither, the bank can file a motion for relief in the automatic stay to continue the foreclosure, which could be tough to defend against.
What Are The Different Bankruptcy Chapters That Can Help Avoid Foreclosure In New Jersey?
Any of the three bankruptcy Chapters available to ordinary individuals in New Jersey, Chapters 7, 11, or 13, would impose the automatic stay when you file, thus protecting your home in the short run.
Nevertheless, the Chapter 7 stay is only temporary to allow for some time to look for other places to live or add time for the trustee’s sale of the property. Because Chapter 7 bankruptcy does not allow you to keep most assets (though certain assets can be exempt) it is probably not the best for protecting against a foreclosure.
More frequently, the chapter that is chosen to assist a homeowner in avoiding foreclosure would be Chapter 13. There, you can structure any past mortgage defaults (known as plan arrearages) over the five-year life of the plan while maintaining the contractual mortgage payment, preventing the foreclosure entirely.
On the other hand, in Chapter 13a plan is proposed by the debtor within 14 days of filing, and the debtor must commence payments on that plan within 30 days. Nevertheless, it is more routinely used by homeowners to preserve equity in their property and attempt to save the residence.
Chapter 11 is usually not the best alternative given its cost, expense, and more significant confirmation requirements.
Can Homeowners Use Chapter 7 Bankruptcy To Stop Foreclosures In New Jersey?
Chapter 7 is not well adapted to saving a residence, since it allows for most assets to be seized and sold to try and repay creditors. Sometimes you will have no other choice however and it can still have some benefits.
The most common use of Chapter 7 to stop foreclosure in New Jersey would be in an instance where the debtor realizes that they are going to surrender control of their residence anyway. They do not want to lose it at a foreclosure sale and a Chapter 7 trustee can instead market and sell the property to avoid the forfeiture in foreclosure. They might also choose to do so if they do not want to go through the difficulty of marketing and selling the property and prefer to leave that up to the Chapter 7 trustee.
In addition, when a debtor is trying to reorganize their affairs and knows they have limited equity in the property, but simply wants to buy some time, they could use Chapter 7 to stop the foreclosure temporarily. This would allow time for them to help find a new residence to live in, usually as renters because of their credit issues.
What Role Can Chapter 13 Bankruptcy Play In Helping Homeowners Avoid Foreclosure In New Jersey?
A much stronger option for avoiding foreclosure, Chapter 13 bankruptcy can allow homeowners to keep their residence and get back on track with mortgage payments to avoid future foreclosures.
Chapter 13 bankruptcy allows for the cure of mortgage arrears that occurred before the default during the term of a Chapter 13 plan. You will, however, have to propose a plan to pay them off, in addition to the regular payments or negotiated protection, over the next three to five years.
If a debtor doesn’t propose a feasible Chapter 13 plan, and cannot pay their contractual mortgage payments or a negotiated protection, the foreclosure could be imminent as the creditor may move for a stay relief to finish the foreclosure.
Nevertheless, Chapter 13 bankruptcy remains the most common and advantageous remedy to assist homeowners. It can either allow them to cure the arrears on their mortgage and save the home or set forth an orderly timetable in which to sell the plan and recover the equity in the house that would otherwise be lost in the foreclosure sale.
What Eligibility Requirements Are There For Homeowners Seeking To Avoid Foreclosures Through Bankruptcy?
Any individual seeking bankruptcy relief must complete a credit counseling course. They must also file a complete bankruptcy petition, and future monthly schedules, and disclose their current monthly income. In the Chapter 13 case, their disposable income is turned over to the Chapter 13 plan which is between three to five years depending on their median income.
In addition to qualifying for Chapter 13 bankruptcy debt relief in New Jersey, your total debts must not exceed $2.75 million. Otherwise, you will have to file for the more complicated and costly Chapter 11 individual bankruptcy.
Can Filing Bankruptcy Help Homeowners Catch Up On Missed Mortgage Payments In New Jersey?
Once you have filed for bankruptcy and proposed a Chapter 13 plan, it is up to you to follow through on that plan, which can and should include catching up on missed mortgage payments as well as paying future ones.
The bankruptcy code provides that mortgage arrears in a Chapter 13 plan must be cured within a reasonable time within the plan. However, the routine position of secured creditors is that as long as they’re receiving their contractual mortgage payments, they will accept the arrearage payments over the entire three to five-year life of the plan.
Does Bankruptcy Help Homeowners Negotiate Loan Modification Or Payment Plans With Lenders?
Bankruptcy can assist homeowners who seek loan modifications or want to reorganize their debt through a Chapter 13 repayment plan. Nevertheless, loan modifications are usually best pursued earlier in the process and before bankruptcy, which comes with additional costs, hassle, and commitments.
While there are opportunities for the debtor to seek loss mitigation relief in bankruptcy court, that program tends not to be as efficient as negotiating the loan modifications before becoming more than three to five months behind and risking foreclosure.
Regardless of whether you are doing so through bankruptcy or not, you should always have an experienced lawyer with you when you are negotiating or working with a bank to avoid foreclosure to ensure your rights are protected, and that you are aware of your options.
For more information on Bankruptcy As A Foreclosure Defense In NJ, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (908) 373-8500 today.