I have been working with my bank for the last year and a half on a mortgage modification, and finally was denied. I have no idea why it took them so long and then they didn’t give it to me in the end, and now they are foreclosing on my house. My only option now is to file for chapter 7 bankruptcy, because I’m too far behind to pay for a chapter 13 bankruptcy repayment plan. When should I file for chapter 7 bankruptcy? How long will I be able to remain in my home after I file chapter 7 bankruptcy? Is there anything I can do to help my situation out that I am not aware of?
I’ve heard this story many times before, banks using the mortgage modification process to to force a homeowner into bankruptcy, it’s a very sad and common practice. And as you realized, the reason they did it was so you couldn’t afford a chapter 13 bankruptcy, because of how long the mortgage modification process was. They never wanted you to go to a chapter 13 bankruptcy, because within chapter 13 bankruptcy the bankruptcy court can grant you a mortgage modification that your situation calls for, through the use of filing certain motions with the bankruptcy court. This is the main thing that banks are trying to avoid while pretending to give you a mortgage modification, they simply want you to be so far behind you could never handle the repayment plan of a chapter 13 bankruptcy.
Now that your only option is chapter 7 bankruptcy, it’s time to discuss when you should file, how will it affect your foreclosure and how long will you be able to stay in your home after foreclosure. Chapter 7 bankruptcy should always be filed before your foreclosure sale date, this is critical. If you file for chapter 7 bankruptcy after your house is actually been foreclosed upon, the bank will most likely not attempt to sue someone for hundreds of thousands of dollars who couldn’t even pay them normal monthly mortgage payment, they will simply write the debt off to the IRS. Now when they write off to the IRS the difference between what you owed on the mortgage and what they sold your house for at foreclosure, the IRS will in turn tax you for that dollar amount as it was income on a 1099. This is the same thing that happens when you settle a credit card debt with the credit card company, the difference between what you pay that settlement and what the full dollar amount you owed you will pay back to the federal government in the form of taxes on a 1099 for that calendar year on your taxes. So the most critical step is you need to file chapter 7 bankruptcy before your foreclosed.
In chapter 7 bankruptcy there is a mechanism called the automatic stay, which stops all foreclosure and collection practices by your creditors. This will stop your foreclosure dead in its tracks when you file for chapter 7 bankruptcy. As long as you file for bankruptcy before your foreclosure sale date, the automatic stay will bring your foreclosure process to a halt. The bank does have a right to file a motion of relief from the automatic stay, but they rarely do this at all. Most likely the bank will sit back and wait for your bankruptcy to be completed, and depending on the state you live in will wait for a statutory amount of time before proceeding with your foreclosure again. During this time many banks in fact actually offer mortgage modifications, because they realized what they tried to do to you was not going to happen and they’re not able to recoup the money the way they would’ve had a foreclosed upon you. So you have the possible option of actually getting a mortgage modification after you’ve received a chapter 7 bankruptcy discharge. You also have the option of negotiating a mortgage modification within your chapter 7 bankruptcy to the form of a reaffirmation agreement. A reaffirmation agreement is basically when you’re reaffirming the debt and you choose different interest rates and payment schedules, basically a mortgage modification. Most people don’t realize that this can be accomplished and most inexperienced bankruptcy lawyers have no idea how to do this at all.
The best part of chapter 7 bankruptcy on a foreclosed house is, in Massachusetts that the statutory waiting period before they can even reinitiate the foreclosure process, which is 150 days. This is to give you a chance to pay back the bank and avoid being foreclosed upon. Then they’ve got a start the foreclosure process all over again and depending on how busy that bank is foreclosing on people could be anywhere between a few months to years. The quickest I’ve ever seen them restart of foreclosure is seven months, but the longest I’ve seen them allow the homeowner to keep the house after bankruptcy was six years. And then even after you’re actually foreclosed upon, in Massachusetts they need to go through the eviction process to actually force you to leave the home. So if you at the time a bankruptcy takes to complete usually 4 to 6 months, then the statutory period of 150 days, and then depending on how busy the bank is you may able to be able to stay in your home anywhere from over half a year to several years or more, and not have to pay rent at the new location you will eventually have to live that.
In conclusion, if you file chapter 7 bankruptcy prior to being foreclosed upon, you will not be hit with the tax ramifications of the foreclosure sale, and could possibly remain living in your own home for years rent free, instead of paying thousands of dollars to rent an apartment or another home somewhere. You can also obtain a mortgage modification within a chapter 7 by negotiating a reaffirmation agreement or the bank could possibly offer you a mortgage modification after you receive your chapter 7 bankruptcy discharge. So it is critical that you file for chapter 7 bankruptcy before your foreclosure sale date.
Joseph F. Botelho, Esq.
BOTELHO LAW GROUP
Attorneys At Law
901 Eastern Ave.
Fall River, MA 02723
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