Filing bankruptcy to stop a mortgage foreclosure


The moment you file for bankruptcy relief (including an emergency petition) an automatic stay goes into effect that prohibits your lender from going forward with the foreclosure sale. This means that bankruptcy can still delay or stop the foreclosure process as long as the home has not been sold yet.


Attorney Tom Olsen: My guest today is Attorney Paul Urich. He's a bankruptcy attorney right here in Orlando. Paul, people are still using bankruptcy when the court is foreclosing mortgages on them.

Attorney Paul Urich: Correct.

Attorney Tom Olsen: If you've stopped making mortgage payments and the bank does a mortgage foreclosure, bankruptcy has the ability to stop that foreclosure, but what would happen in that typical scenario with the bank loan?

Attorney Paul Urich: Well, if you're doing a chapter seven, all it will do is stall the foreclosure for about three months because the mortgage company has to go to bankruptcy court and get what's called relief of stay to get permission to pick the foreclosure backup. If you do a chapter 13, you can restructure the mortgage to catch it up during the three to five year period and the bankruptcy court also offers a mortgage mediation program where you can actually try to force a modification during the bankruptcy itself.

Attorney Tom Olsen: If you're in a home and it's being foreclosed, and you want to stay in that home and you have maybe the ability to catch up on back payments, then chapter 13 is the way to go. If you're in a home and you're so far behind on the mortgage payments and you're not ever going to be able to catch it up, then you would just want to get out of there, then chapter seven is a way to proceed.

Attorney Paul Urich: Yes, it will buy you some time and also protect you from the mortgage deficiency. Of course, those are very rare, because a lot of the mortgages that are being foreclosed on are from the mortgage mania era, 2005 to 2008, and they have all kinds of RESPA violations or they have trouble finding the note or they're part of the Department of Justice settlements or HAMPs, HARPs, TARPs, and whatever other government programs-- [crosstalk]

Attorney Tom Olsen: If they're going to do a chapter seven bankruptcy but they have enough equity in the property to sell it and make a little bit of money, could a chapter seven delay that foreclosure long enough for them to sell it and cash out?

Attorney Paul Urich: Well, the trick would be, they would have to be able to maintain-- They have to file it early enough in the foreclosure that they could sell it prior to, the only problem is when you're selling a house in foreclosure, the bargain vultures come out.

Attorney Tom Olsen: I got you. All right, folks, my guest today is Attorney Paul Urich. He's a bankruptcy attorney. My name is Tom Olsen. The name of the show is Olsen on Law. We're going to take a break. We'll be back in just a few minutes.