Foreclosure is a common predicament faced by many people filing bankruptcy, and is an issue that affects homeowners at every income level. If you are behind or “in arrears” on your mortgage payments for more than a couple months, chances are your primary mortgage lender will send you a pre-foreclosure notice demanding that you make payment otherwise they will take legal action. Eventually if the mortgage is not brought current, a mortgage lender will initiate a foreclosure proceeding. Once served with the notice of sheriff’s sale that formally commences a foreclosure proceeding, most homeowners have six weeks until their house is sold at the county sheriff’s office and then six months thereafter to remain in the home through the redemption period*.
If you want to save your home and stop a sheriff’s sale, bankruptcy can help. While both Chapter 7 and Chapter 13 bankruptcy will stop the ticking clock of a foreclosure or sheriff’s sale, Chapter 13 may also help you save your home by providing a way for you to pay mortgage arrears over time through a Chapter 13 payment plan, while still resolving other unsecured debts such as credit cards that may restrict your cash flow. Either form of bankruptcy puts an automatic stay on the foreclosure process—that is to say, it freezes the foreclosure process—from the moment a bankruptcy petition is filed, providing you with crucial time while your sheriff’s sale is temporarily stayed.
Even if you want to move forward without your home, Chapter 7 bankruptcy or Chapter 13 bankruptcy can provide months more time in the house without mortgage payments, truly offering a fresh start and way to rebuild your finances for what’s next. And because bankruptcy is a long term solution to dischargeable debts, you won’t receive a deficiency judgment or taxable 1099 on a foreclosed or short sold property once you receive a discharge in bankruptcy.
If you are in the midst of foreclosure, the best time to take advantage of your bankruptcy options is prior to the sheriff’s sale. Even after a sheriff’s sale, you may still have options to extend the time you can stay in the home and also discharge of the underlying debts.
This website has extensive information on the foreclosure process in Minnesota, what Chapter 13 can do to help you save your home, and how bankruptcy can minimize your debt while maximize the time you can stay in the home should it go through foreclosure.
*The foreclosure process, timeline and other requirements of law vary on the type of real estate owned and the type of foreclosure proceeding commenced by a lender, amongst other factors. The information provided here represents the general foreclosure process in Minnesota and you should always consult an attorney for how the law applies under your specific circumstances.