The automatic stay, an effective ban on a lender’s ability to proceed with foreclosure on a home, is started the moment a petition in bankruptcy is filed and accepted in a Massachusetts federal bankruptcy court. As such, a bankruptcy petition is a very powerful tool. The question for homeowners considering bankruptcy in Massachusetts is often the decision as to under which bankruptcy chapter to file. Typically, for a homeowner who has fallen behind on mortgage payments on their home in Massachusetts, Chapter 13 is the bankruptcy option to choose.
Chapter 13 bankruptcy allows the petitioner to lump any back payments, late fees, and other associated costs owed to a mortgage lender into a repayment plan going. Effectively, chapter 13 bankruptcy allows the debtor to pay arrearages as well as amounts owed now and in the future over a 3-5 year repayment plan. The repayment plan under chapter 13 makes this bankruptcy chapter the ideal choice for filers wishing to keep their home. Keep in mind, and this fact cannot be understated, that once the repayment plan has been initiated all payments under the plan must be made and must be made timely.
Chapter 13 is also a good choice for a homeowner in the aforementioned circumstance who also has a substantial amount of unsecured debt. Unsecured debt, usually in the form of unsecured credit cards, may be discharged partially or wholly depending upon the debtor’s circumstances. At other times some of this debt will be included in the repayment plan. It is further possible for tax debt to be addressed by the bankruptcy process, and for auto or truck loans to be reduced through the Chapter 13 bankruptcy process in Massachusetts.
Chapter 7 bankruptcy also invokes the power of the automatic stay to effectively stop foreclosure on your home. However, under this chapter in bankruptcy if you cannot make up back payments the automatic stay protection to you may be lifted as the lender appeals directly to the bankruptcy court for permission to continue with previous foreclosure efforts. Also, because the automatic stay ends after 30 days unless your attorney requests that the stay remain in effect, and that motion is granted by the bankruptcy court, the protection of the automatic stay will lapse. Chapter 7 is often not the best bankruptcy option for a homeowner without the ability to make up missed payments to a mortgage lender for the above reasons.
What about my Second Mortgage – Can the Lender Foreclose?
While it is possible that a lender will be able to foreclose on your home for failure to pay arrearages and to remain current on second mortgage payments owed them, it is not likely to occur where that mortgage is under water (that is, the amount owed to the lender is greater than the value of the security). Further, some second mortgage lenders will not pursue foreclosure because of their priority as lenders and the amount of money they are likely to receive as a result of their efforts.
To begin with, although what follows is not a complete expose on priority interests of various security interest holders, here are some basics about priority interests. Usually, a first mortgage holder (the lender) has a superior claim – what is known as a priority interest in the value of the home up to the amount owed them under the mortgage. Generally speaking and by way of example, if you owe a lender $100,000 on a mortgage, and that lender is the first mortgage holder, they are first in line to collect that money when something goes wrong with their receipt of payment. Second mortgage holders do not usually share this same elevated position. Again, generally speaking, a second mortgage holder’s interest is trumped by the interests of the first mortgage holder, holders of fees incurred by taxes owed on the property, condo fees, or possibly other interests. For the second mortgage holder, the cost of pursuing foreclosure and recovering their money may simply not be worth the hassle after all other priority interest holders in the mortgage have been given what is owed them.
Overall, the effect of filing for bankruptcy in Massachusetts is that, in Chapter 13 bankruptcy at least, you will have no concern over foreclosure provided you abide by the repayment plan organized under Chapter 13. A reminder, that though Chapter 7 will also provide the same automatic stay which causes foreclosure activities to cease under Chapter 13, Chapter 7 petitioners will find that the automatic stay provides only temporary relief from foreclosure activities. Though it is possible that a loan modification coupled with a lender agreement to not pursue foreclosure may be successful, or that a debtor could engage in other activity aimed at achieving a relaxation of mortgage lender efforts to foreclose, it is likely that the best choice for stopping foreclosure would be filing for bankruptcy under Chapter 13.
It ought to be clear after review of this article that bankruptcy and the bankruptcy process is a complex, multi-faceted issue. It is always advisable to engage an experienced attorney capable of taking the time to review your unique circumstances to assist you in arriving at the best option from the array of options available to you when considering bankruptcy.
DISCLAIMER:
The information provided in the pages and posts of this website are for general informational purposes only. The information presented on this site is not legal advice, and no attorney-client relationship is formed by the use of this site.
