Understanding the Intersection of Bankruptcy and Foreclosure
Understanding how bankruptcy and foreclosure intersect in the State of Ohio may be the key to saving your home. In this article, we explore more about when and how bankruptcy may stop a foreclosure.
If you’re facing foreclosure in Ohio, you’re likely under extreme stress. In addition to the financial and legal stressors, you may be uncertain how you’ll be able to provide a home for your family in the short-term and long-term.
Ohio is a Foreclosure State
Ohio is a judicial foreclosure state, which means that the mortgage holder must go to court to obtain an order to sell the property. In a judicial foreclosure state, the homeowner typically has a little more time and greater procedural protections than in a non-judicial state. But, that doesn’t mean you can afford to delay. In Ohio, a foreclosure sale can take place as early as five months after your first missed payment.
Your Options When Facing Foreclosure
The options available to a homeowner facing foreclosure vary depending on a variety of factors, including the amount owed, the value of the property, how far in arrears the mortgage is, the borrower’s credit score, and other considerations.
Some possibilities include:
- Refinancing the house to re-start repayment with no delinquency
- Requesting a modification that would allow for lower payments moving forward
- Selling the house to pay off the loan
- Entering into a short-sale agreement by which you sell an “underwater” property for less than the mortgage and the lender accepts that payment as full settlement
One other possibility is filing for bankruptcy protection. A mortgage loan is a secured debt, so you can’t simply discharge your mortgage debt and keep your house. But, bankruptcy does provide a solution for some people facing foreclosure.
How Different Types of Bankruptcy Impact Foreclosure
Chapter 7 Bankruptcy and Foreclosure
Chapter 7 bankruptcy is intended primarily to discharge unsecured debts like credit card balances and medical bills. So, Chapter 7 generally won’t provide a long-term solution for those facing foreclosure. However, there are two potential benefits:
- Filing for Chapter 7 bankruptcy typically results in an immediate stay (or halting) of all collection activity, including foreclosure. While the automatic stay is temporary, it can provide the homeowner time to explore the options and make the best decision possible under the circumstances.
- If the homeowner is unable to keep the home or chooses not to, Chapter 7 bankruptcy can provide a means of walking away from the property free of any balance that remains on the mortgage after sale of the property.
For those who hope to prevent foreclosure and bring mortgage payments current, Chapter 13 bankruptcy is typically the better answer.
Chapter 13 Bankruptcy and Foreclosure
Some homeowners have enough income to keep mortgage payments current moving forward, and even to pay toward the past-due balance but can’t catch up fast enough to prevent foreclosure.
For people in this situation, Chapter 13 bankruptcy may offer a solution.
In Chapter 13, past-due balances are repaid across a three to five-year repayment plan. As long as both scheduled payments under a confirmed plan and current mortgage payments are paid when due, no further foreclosure action is permitted.
In some cases, when the value of the home is less than the outstanding balance on the original mortgage, second and third mortgages may even be eliminated in Chapter 13 bankruptcy.
Talk to an Ohio Bankruptcy Attorney if You’re Facing Foreclosure
There’s no one-size-fits-all solution for people facing foreclosure. But, there is one principle that holds true across the board: it’s important to educate yourself about your options and act quickly. A free consultation with an experienced bankruptcy attorney may be the best starting point.
The information presented in this post is not legal advice and does not form a lawyer/client relationship. Laws and circumstances can differ and change.
Please contact us for a personal review of your situation