Should I File Bankruptcy to Avoid Foreclosure?

It’s a close call, but you should file bankruptcy to avoid foreclosure, for the reasons outlined below. Based on the statistics, many people erroneously believe the opposite is true. Since 2005, the bankruptcy filing rate has plummeted and the foreclosure rate has gone through the roof. In fairness, both bankruptcy and foreclosure have some significant downsides. But after carefully comparing the two, the choice is clear.

Bankruptcy is especially a better idea than foreclosure if a good Chicago bankruptcy lawyer is at the wheel. Attorneys maximize the benefits of bankruptcy and minimize the down sides. Lawyers are aware of obscure legal loopholes in bankruptcy laws. They not only know the law. They also know how to make the law work for distressed debtors like homeowners behind on their mortgage payments.

What Happens During Foreclosure

The bankruptcy-vs.-foreclosure question is especially close in judicial foreclosure states like Illinois. Banks cannot foreclose on property unless owners get their day in court. Several wrongful foreclosure defenses are available in these proceedings.

The statute of limitations may be the best example. This legal rule is a little complex, so strap yourselves in.

Assume Bank sends Owner an acceleration notice, which means the bank no longer accepts partial payments. That notice also includes an opportunity to cure the defect. Owner pays the delinquent amount but Bank never formally reinstates the loan. Once the SOL runs, which is normally four years, Bank loses the power to foreclose on the loan, no matter how far Owner falls behind on payments.

These defenses are only available in rare cases. For the most part, judicial foreclosure is a formality, and someone else decides what happens to the house.

Additionally, foreclosure sends the wrong message to future creditors. Debtors who partner with a Chicago bankruptcy lawyer at least did something to address the problem. Debtors who go through the foreclosure process simply quit.

What Happens During Bankruptcy

In contrast, bankruptcy begins with a voluntary petition. That distinction is important. In most cases, no one tells debtors what to do. They have complete control over the process. This control may be the biggest benefit of bankruptcy, but it’s certainly not the only benefit.

Additionally, the benefits of bankruptcy, unlike foreclosure defenses, are available to almost everyone. The Automatic Stay not only stops foreclosure, even if the auctioneer’s gavel is about to fall and the property is about to be sold. Section 362 of the Bankruptcy Code also stops most other creditor adverse actions, such as repossession and wage garnishment.

Bankruptcy also shields a house from liquidation, just like it shields most other assets from liquidation. Illinois has very broad formal exemptions. Informal, exemption loopholes expand them even further.

Because of the Automatic Stay, bankruptcy also gives homeowners an advantage when and if their lawyers negotiate foreclosure alternatives. These alternatives include:

• Short Sale (the bank agrees to let the owner sell the house for less than the UPB (unpaid principal balance) and eat the remainder),
• DIL (deed in lieu of foreclosure, which is basically voluntary foreclosure), and
• Cash for Keys (the bank pays the owner to clean out the house).

These options also include the kind of bankruptcy. The choice usually depends on whether owners want to stay in their houses or not. Chapter 7 gives most debtors a fresh start in under nine months. Chapter 13 gives debtors up to five years to catch up on delinquent payments, including past-due mortgage payments. 

Reach Out to a Diligent Cook County Lawyer

No matter what kind of financial problem you are having, there’s a way out. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters throughout the Prairie State.

Source:

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