Questions: What will happen if my house is in foreclosure and I don’t file for bankruptcy?
Foreclosure proceedings that run their course end with a public auction where the property is sold to the highest cash bidder or with the bank retaking the property. Depending on the state where you live, you may still owe the bank some money, and they could sue you to get it. If you file for emergency bankruptcy, you can temporarily stop this process. But, it is not a simple process, and it all depends on the type of bankruptcy you file. If your goal is to keep your home, your best option is to file Chapter 13. Filing Chapter 7 only delays the process, while Chapter 13 allows you to keep your home, you are required to meet with your lender and creditors to set up a repayment plan. If you fall behind in your payments, you can lose your home. Details about which bankruptcy is best for you are better discussed with an attorney who can help you understand your choices and inform you about what to expect in your current situation. However, nowadays, we have to look at the situation a bit differently since states have temporarily suspended evictions and foreclosures due to the coronavirus crisis. Check with your local authorities and attorneys to understand how these recent developments affect your situation.
Bankruptcy is not your only alternative to deal with foreclosure. During the pre-foreclosure period you have options to negotiate with your lender to keep your home. If you cannot do it on your own, enlist the help of a nonprofit housing counselor. Counselors can offer free services over the phone and online to help you negotiate a deal with your mortgage lender if it’s possible. Some of your options can include loan modifications, which usually entail refinancing your loan, reducing your interest payments, or extending the length of your loan to lower your monthly payments. Depending on your situation and the type of loan you have, you can explore additional options such as a partial claim or special forbearance programs.
In some situations, keeping your home is not always possible. Even then, you have alternatives to deal with foreclosure. To get released from the mortgage, you can look into a short sale or a deed in lieu. If you do a short sale, your lender agrees to sell your home for less than you owe and forgive the rest of the debt. Through a deed in lieu of foreclosure, you give up your home voluntarily to the bank in exchange for a release from the mortgage obligation.
All of these options have pros and cons, so they are best discussed with an expert that can help you navigate your choices, especially now in times of uncertainty and when new regulations are being adopted across the nation. I suggest you reach out to a housing counselor online or over the phone and get the guidance you need. Good luck!
Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.