What Happens During the Foreclosure Process?

In Georgia, the bank will advertise your house in the local newspaper for 4 weeks before the foreclosure date.  During this time, most people will receive tons of letters from bankruptcy attorneys and the bank. Do not ignore your mailbox during this time.  If you choose to file bankruptcy, your attorney will need to know the name of the law firm that is trying to foreclose.

Do not wait until the last second.  Do not let some well meaning banker lead you on with the promise of “I will get a you loan modification.”  Once your house is foreclosed on the courthouse steps, there is nothing you can do to get it back.

Two Types of Bankruptcy

Most people who file bankruptcy to save their home will file a Chapter 13.  Chapter 13 allows you to take all of the arrears you owe and spread them out over a monthly payment that is affordable to you.

The only time a person should use Chapter 7 to stop a foreclosure is when the regular monthly payment is too high and there is equity in the house.  In a case like this, the Chapter 7 trustee will put the house up for sale shortly after the case is filed. Once the house is sold, the debtor will get paid any exemption amount claimed ($21,500.00 for an individual and $43,000.00 for a married couple).

If there is no equity in the house and you want to let it get foreclosed, you will almost never have to worry about paying any deficiency unless you have a second mortgage.  For more information on this, read this blog post https://kellycanhelp.com/blog/do-i-need-to-file-bankruptcy-in-georgia-if-i-am-willing-to-let-my-house-get-foreclosed/

Contacting an Attorney Can Help

When facing foreclosure, finding the right bankruptcy lawyer will make all the difference to protecting your rights. Since each situation comes with its own set of challenges, only an experienced attorney can assess your options, and provide you with the best strategy to regain control over your debt.

The Law Office of Jeffrey B. Kelly can help with your legal needs from the first time you file a motion all the way through bankruptcy court. Call (770) 637-1756 for a consultation to begin your process and discover your best path to financial recovery.

Auto Loans: Negative Equity & Repossession

The average interest rate nationally for a 60-month auto loan is 4.21%. If you initiated your auto loan at a time where your credit was more favorable, you likely have a rate under 10%. The purchase price of vehicles continues to rise, which encourages buyers to select longer term loans in order to have a more affordable monthly payment. Vehicles depreciate rapidly, meaning their value declines each year. Negative equity occurs when you owe more on the balance of the vehicle loan than the car is worth. This creates a problem if wanting to simply “get out of the loan” by selling the car to satisfy the balance. The same is true in a repossession scenario. If you fall behind on your payments, the lender will reclaim the vehicle and sell it at an auction. The sales price they receive is likely less than the loan balance creating a deficiency balance that they are likely to pursue from you, thus creating more unpaid debt.

Chapter 7 Options to Get Out of a Car Loan

In a Chapter 7 bankruptcy, you are essentially discharging all current unsecured debt. Chapter 7 filers have three primary choices for a car with a current loan:

• Surrender the vehicle: Those qualifying for a Chapter 7 who owes more than the vehicle is worth may choose to return it to the creditor. After the lender sells the vehicle there will likely be a deficiency balance remaining; however, the balance may then be discharged through the bankruptcy.

• Reaffirm the loan: If you wish to retain the vehicle and are current with the payments, you may reaffirm your intentions with the lender before the bankruptcy is processed and continue with your agreement.

• Redeem the vehicle: Under limited circumstances, the court may approve redemption if the lender does not oppose. The debtor would pay the lender a lump-sum payment (if they have the funds) equivalent to the fair market value of the vehicle and be released from the loan agreement with the initial lender. The vehicle is then more affordably financed with a different lender. This option is not common and your attorney will advise you if it makes sense based on your circumstances.

Those emerging from a Chapter 7 bankruptcy seeking to finance a vehicle may be able to do so through subprime lending. It will require that you have verifiable income. Lenders are typically willing to finance those emerging from a Chapter 7 because they likely have minimal debt consuming their income and because the lender may earn high rates of interest on the loan.

Chapter 13 Options to Get Out of a Car Loan

Those entering a Chapter 13 modification plan struggling with a vehicle loan that has a high interest rate and a balance that exceeds the vehicle’s value have an opportunity for some relief. In your debt modification plan the vehicle loan interest rate may be reduced to approximately 6% and the balance owed adjusted to a lower amount equivalent to the vehicle’s current market value. In order to qualify for these adjustments, known as “cramming”, the debtor must have purchased the vehicle more than 910 days earlier and the court must deem that the debtor can afford the payments. Keep in mind that this loan modification is voided if the debtor does not complete the bankruptcy process.

Losing a Car in Chapter 13

There are three common ways that a vehicle is lost in a Chapter 13:

• The existing loan balance is too high for feasible repayment through the Chapter 13 modification plan.

• The debtor fails to maintain insurance on the vehicle and the lender repossesses it to avoid potentially being left with a useless asset if the vehicle were damaged.

• The payments are not being made according to the Chapter 13 repayment plan and the lender asks the court for permission to repossess.

Other Considerations

Debtors considering bankruptcy that want to retain their vehicle should keep their car payments current. If you are behind on payments or are in a loan wi80th unfavorable terms, you might consider attempting to negotiate with your lender. Depending on the circumstances, the lender may rather make some adjustments to increase the loan’s affordability and avoid the repossession process. Keep in mind that voluntarily surrendering your vehicle is likely to negatively impact your credit in the same manner as a repossession would, as you did not adhere to the terms of the loan agreement. Also, if you surrender the vehicle or have it repossessed and do not proceed with a bankruptcy, the lender may begin collection activity on the deficiency balance.

Attorney for Bankruptcy in Georgia

There are many options and strategies to potentially consider when you have a vehicle loan involved in bankruptcy. The decisions you make during this difficult financial period are critical to your future and having an experienced attorney to represent your best interests is important. We have over 20 years of experience practicing Georgia bankruptcy law and encourage you to contact the Law Office of Jeffrey B. Kelly at (770) 637-1756 for a complimentary case evaluation today.

What is Chapter 13?

One of the two primary types of bankruptcy filed, chapter 13 serves as a tool for people to get out of debt through a restructuring process. The other main type, chapter 7, eliminates debt through the sale of assets. Chapter 13 is typically recommended for people who are expecting a life change that will improve their financial position; this could be a raise, promotion, or an inheritance. Through the process, all the debts will be collected and instead of eliminated, they will be re-structured into something that the individual can afford. New payment rates will be dictated by the court, which can be a big advantage as the credit companies will not have a say in what happens.

With Chapter 13, you will keep almost all your assets. There are some instances when debt will be discharged, or assets sold, but this is very rare. Chapter 13 also will only stay on your credit score for 7 years instead of 10 years with chapter 7. It is also very easy to build your credit score up after this, as you will already be making payments and building your score up through the restructuring.

Benefits of Chapter 13 on a Home

In addition to the benefits of making your overall debt more manageable, there are specific benefits to taking chapter 13 with your home. For some people, their house may be close to foreclosure and they are not able to make payments. Instead of losing your home, taking chapter 13 can save your home. As soon as bankruptcy is filed, an automatic stay is placed on your assets, meaning that all foreclosure proceedings stop. Creditors are also required to stop harassing you as soon as bankruptcy is filed, giving you some peace and quiet.

In most cases, the repayment plan that is created will have an area that dictates new terms for the mortgage. So even if your house was about to be foreclosed before the filings, the institution will not be able to try to foreclose your home as soon as the bankruptcy proceedings are complete. There are few cases that will continue with the foreclosure even after the repayment plan has been created, but this is rare. Even if the court opts to continue with foreclosure, bankruptcy proceedings can take months, and you will be allowed to live in your home during that time.

If you have a second or third mortgage payment on your home, declaring chapter 13 can also help you eliminate those payments. The way these works is your home, first mortgage, is considered secured debt. If the home has dropped in value, there might not be any equity left, and the other mortgages would be considered unsecured debt. With chapter 13, unsecured debt will be the last priority in re-structuring and will sometimes be eliminated if not significantly reduced.

There is also the added benefit of modifying a mortgage in certain situations. If the debt owed is significantly higher than the actual value of the property, than the court may only make your new payments based on the actual value of the property through a process called a “cramdown”. Say you have a mortgage of $400,000, but your home is only worth $350,000. Assuming you are eligible to receive a cramdown, that $50,000 difference will be placed in unsecured debt. It is important to note that cramdowns are rare, but if you can qualify for one it may significantly help your situation.

What to Do

If saving your home is the only reason for you to take chapter 13, there may be other options you want to explore for this. However, if you have other debts that are too much, bankruptcy is possibly the best option available to you. Consulting with a bankruptcy attorney can be a great way to see what option is best for you and your situation, as everyone will have different needs.

Essentially, your home will be safe in chapter 13, and sometimes it is best to file for bankruptcy to even save your home. The process of bankruptcy is a frightening one but having the right legal team will help you get through the process as painlessly as possible.

Numerous factors can come into play and help determine whether the home is safe from seizure in a bankruptcy. It is imperative that the debtor research their situation, whether by consulting with an attorney or finding out themselves, prior to making a decision on filing bankruptcy.

There are two chapters in bankruptcy: Chapter 7 and Chapter 13. While Chapter 13 is the safest bet for saving your home, it is not always the necessary choice. Filing a bankruptcy does not automatically mean that your house will be taken from you. In fact, it is far more likely that the debtor will be able to keep their home in either chapter of bankruptcy.

Example

The most typical situation for a debtor who is also a homeowner finds him struggling to pay his unsecured credit cards and medical bills, while also ensuring his mortgage payment is made every month. Assuming the debtor/homeowner has his priorities in order, he will pay his mortgage every month to avoid foreclosure. If this debtor/homeowner qualifies for Chapter 7, he should be able to keep his home in most situations.

While filing a bankruptcy automatically discharges all debt able to be discharged, including home loans, the debtor can sign a reaffirmation agreement with the mortgage company. The reaffirmation agreement is filed with the bankruptcy court and ensures that the reaffirmed mortgage stays an official debt owed by the debtor and can resume after the bankruptcy is closed. Many debtor/homeowners can easily keep their homes while still getting the financial fresh start they desire.

Amount of Equity

The only roadblock to the above situation can occur when the house has a large amount of equity. Most homeowners with mortgage loans do not have enough equity in their homes for this to be a problem.  With the Georgia Homestead Exemption, a Georgia debtor/homeowner may exempt $21,500 of equity.

Note, however, that the debtor is current with his mortgage payments. A debtor who is not up to date can always be foreclosed on, even after bankruptcy.  The average debtor should be able to file Chapter 7 and keep their home as long as they are not behind on their mortgage.

Overdue Mortgage Payments

The debtor who is behind on their mortgage is in a much different position. While mortgage modification mediation exists in Chapter 7, it is much more difficult due to the short timeline between the case being filed and the case being closed.

This is where Chapter 13 comes into play. The majority of people who file bankruptcy to save their homes are going to file Chapter 13. The process of a Chapter 13 is much more conducive to saving a home from foreclosure than Chapter 7.

A Chapter 13 allows the debtor to catch up on their mortgage arrears while they are in the bankruptcy process, where the home is protected by the automatic stay that is imposed on all creditors when the bankruptcy is filed. The debtor will either catch up with the monthly payments based on their proposed plan or they will have the opportunity to get a modification through the mortgage mediation modification program (most bankruptcy districts have a program of this type). The modification could significantly reduce the monthly payment and make it easier for the debtor to catch up in the allotted time.

For debtors who have too much equity in their home that cannot be protected in a Chapter 7, a Chapter 13 gives them more time to repay the equity or find a loan that will have the same effect.

The main point to remember is that homeowners who are filing bankruptcy do not have to lose their homes in bankruptcy. Chapters 7 and 13 provide plenty of protection for homeowners. As long as homeowners first investigate their options and understand how their homes can be affected, they should be able to keep their homes and get their financial fresh starts.

The bill proposes:

1.  To require lenders to hold 5 percent of the loans they originate that are sold to investors as securities;

2.  To give borrowers greater protection when the mortgage process breaks down; and

3.  To force mortgage companies to charge all origination fees upfront or reflect them in the mortgage interest rate but not both.

I think we will most likely see some type of mortgage reform come out of Congress before the November elections.  In response to the mortgage meltdown of 2009, Congress is going to pass laws forcing mortgage companies to take a much closer look at potential home buyers before they are given any mortgage loans.  The Journal reports that the current proposed legislation “would require lenders to ensure that borrowers can repay their loans and to prove that any refinancing provides a ‘net tangible benefit’ to the borrower.”

The end result is going to be that obtaining a mortgage in the future will be much more difficult than it has been in recent times.  Because of these new stringent requirements, some people who are considering surrendering their house in a foreclosure may want to think twice before letting the house go.

Houses can be saved from foreclosure by filing a Chapter 13 bankruptcy.  A Chapter 13 can eliminate credit card debt, medical debt and any other type of unsecured debt.  Furthermore, any mortgage payments that have been missed can be put in a Chapter 13 plan.  In some cases, Chapter 13 can make it easier to pay future mortgage payments because you no longer have to worry about credit card payments or medical payments.

One of the cruel side effects of the new legislation is that some people who have owned homes in the past will never be able to buy another one in the near future.  Self employed applicants who have extreme income fluctuations throughout the year will have a difficult time complying with the new standards.

Any person in Georgia who is considering surrendering their house in foreclosure should first meet with a local bankruptcy attorney.  It cannot hurt to explore all of your options.

Other Posts:

1.  Can I Wipe Out a Second Mortgage in Chapter 13?

2.  Will I be taxed on my house after foreclosure?

3.  Should I file Bankruptcy or Short Sale My House?