Can Bankruptcy Stop Foreclosure in Michigan?

Losing your home to foreclosure is a terrifying prospect. You may be desperately looking for any options to stop or even slow down the foreclosure proceedings.

Certain types of Bankruptcy, namely a Chapter 13, may temporarily stop your foreclosure. When you file for bankruptcy, an automatic stay puts a temporary halt to the foreclosure, as well as any other debt collection. Chapter 13 bankruptcies allow individuals an opportunity to repay any missed payments through their Chapter 13 plan while maintaining their current payments. However, this option is only available through the Chapter 13 process and the filing of a Chapter 7 does not provide the same relief. A Chapter 13 bankruptcy may be a good solution if you want to keep your home, have the means to catch up missed payments over a 3 to 5-year period, and can maintain your current mortgage payments.

Since every case is different, you would benefit from discussing your situation with an experienced bankruptcy lawyer. Once they know the scope of your debts, assets and income, they can advise you on the best course of action if you want to keep your home and the options to do so.

Foreclosure Process Overview

If you’ve fallen too far behind on your mortgage payments, the mortgage lender will typically begin the foreclosure process. In Michigan, the process usually starts when you receive a “breach letter” from your mortgage lender. This is a pre-foreclosure notice, and it should explain how you can avoid foreclosure. Your lender should also call you and notify you of options to mitigate the loss of your house, including things like a loan modification or repayment plan.

If your mortgage payments are not paid (or “cured” in bankruptcy terms), you will enter the foreclosure process. Once your lender has provided notice that you’ve entered the foreclosure process, they will provide a date when your home will be sold at a sheriff’s sale. Once your home is sold at sheriff’s sale, there is little that the bankruptcy process can control, so it’s imperative you contact a bankruptcy attorney prior to this date.

The lender must post notice of the foreclosure sale 4 weeks before the date of the sale. From the first missed payment to the sale of the house, the entire process could be completed in as little as 5 months. However, you should receive warning of their intent, as well as help in figuring out how to prevent foreclosure.

How Bankruptcy Can Help You Keep Your Home

When you file for bankruptcy, an automatic stay will prevent the foreclosure process from putting you out on the street, at least in the short term. Not all types of bankruptcy are the same, though.

Chapter 7 is the most common bankruptcy filing. This is a liquidation, meaning the valuable things you own are sold (“liquidated”) in order to pay off your debts. It is possible to use the extra time of the automatic stay to either negotiate a loan modification or make up all the past due payments, and therefore prevent your home foreclosure. Given that bankruptcy is often used as a last resort for those experiencing financial stress, this is not likely to be a viable option. With Chapter 7, the most likely scenario is that you still lose your home. Chapter 7’s are rarely advised for individuals facing foreclosure.

Chapter 13 is a reorganization of debts. With this option, the bankruptcy court will work with you to create a repayment plan to allow you to catch up on missed payments and keep your home as long as you can provide a Chapter 13 plan that meets specific criteria. More particularly, you must be able to pay the current mortgage payments, provide a plan for paying any missed payments, and meet the requirements of Chapter 13 under the bankruptcy code. Our office is particularly adept with filing Chapter 13s to stop the foreclosure process and allow individuals the ability to keep their home.

With a Chapter 13 bankruptcy, you may be able to discharge some unsecured debts like credit card debt and medical bills. In addition, if you have a second or third mortgage on your home, you may be able to use lien stripping to re-categorize your junior mortgages into unsecured debt and discharge that as well – in certain circumstances. With these additional debts either reduced or removed through a Chapter 13 bankruptcy, the hope is that you will free up disposable income to make good on your mortgage payments.

RELATED: How Much Debt is Worth Filing Bankruptcy in Michigan?

Alternatives to Bankruptcy

Chapter 13 bankruptcy can be a daunting prospect, since it can have a dramatic impact on your credit score. It can make it more difficult for you to find a lender who is willing to let you borrow money.

However, filing for bankruptcy may not be the only workable solution. There are other options when a homeowner falls behind on their mortgage debt. These include:

• Mortgage Modification: If you are already in foreclosure proceedings, you may be able to work with the mortgage company on a loan modification. If you are facing financial hardship, your lender may help you with a restructured payment schedule. Expect the process to be difficult and slow.
• Forbearance Agreement: If something occurred to prevent you from making payments, such as job loss or a divorce, your lender may approve a forbearance agreement. This will allow you to make low payments for a period of time, as long as you can prove that your financial struggle is short term.
• Repayment Plan: Very similar to a bankruptcy court mandated payment plan, you can work directly with the lender to make a payment plan. This is a good option if you missed a few payments but can meet current payments while slowly paying back the mortgage arrearages.
• Loan Reinstatement: If you can pay all the payments and late fees that you missed, you may be able to get your loan reinstated. However, you need to have the cash on hand to make a lump sum payment.

These are all potentially good solutions, but they are time-consuming, and many individuals do not have the luxury of time when facing foreclosure. The Chapter 13 bankruptcy process can be stressful, but when it comes to keeping your home, you may be faced with hard choices. With an experienced, compassionate bankruptcy lawyer on your side, you can be confident that you are making the best decision for you and your family.

RELATED: What Are the Alternatives to Filing Bankruptcy for Individuals and Small Businesses?

Call CBH Attorneys For Help Keeping Your Home

At CBH Attorneys and Counselors, we understand that each bankruptcy case is unique. Whether you’re looking for debt relief or trying to stop a foreclosure proceeding, you are enduring a lot of stress and difficulty. Forces beyond your control have put you in a very tough position.

Our team is here to help you. We can formulate a personalized strategy for you, whether it be Chapter 13 or a bankruptcy alternative, so that you can protect the home that has been your safe haven.

For a free consultation to learn more about our bankruptcy services, fill out our contact form today or call us at (616) 608-3061. We’re ready to offer you the assistance you need to get through this stressful time.

The content provided here is for informational purposes only and should not be construed as legal advice on any subject.