Bankruptcy As An Option In Fighting Foreclosure

30 Aug Bankruptcy As An Option In Fighting Foreclosure

I am often asked about bankruptcy as a possible option in defending against a foreclosure matter. Depending upon the ultimate goal of the homeowner, bankruptcy may be a valid option to be used as part of the fight against the lender in a foreclosure matter. However, the goals of the homeowner (whether they wish to remain in the property, negotiate a modification, sell the property, or simply walk away from the property with no further obligation in the future) must be taken into account when determining whether the filing of a bankruptcy while in foreclosure is a viable option, as well as considering the addition negative effect that a bankruptcy may have on one’s credit report.

The first advantage of filing a bankruptcy is the automatic stay provision in which all litigation involving the homeowner (foreclosure actions, litigation to obtain judgment on credit card debt, other personal debts), will effectively be placed “on hold” pending the outcome of the bankruptcy matter.  However, the lender may seek an order from the bankruptcy court permitting the foreclosure action to be removed from the stay provisions and allow the foreclosure action to continue if the property is “underwater”, since the bankruptcy trustee will have no equity in the home with which to pay down other debts.

Another advantage to the homeowner  may be obtained through bankruptcy by having any liability for the mortgage debt (the note) be “wiped out” by the bankruptcy, leaving the lender with the only option of pursuing the value of the property in foreclosure.  This option may be effective for homeowners who wish to leave the property  without any further exposure for a “deficiency judgment.”

There are many other advantages, as well as disadvantages, to any decision relating to filing for bankruptcy, especially when one is faced with a foreclosure. However, it is important to consult with an attorney before making any decision relating to bankruptcy, which may affect your legal rights.

In the future in this blog, we will discuss other various defenses and counterclaims available to protect your rights and discover how they might help YOU save YOUR HOME.

Don’t just sit there; fight the good fight!

This blog post is not considered to be legal advice, and is intended for educational purposes only.  For more information regarding any of the foregoing issues discussed above, please contact Robert F. Schillberg, Jr. (rschillberg@schillberglaw.com).