Did you know that New Jersey has the second largest foreclosure rate in the country? If you’re facing foreclosure, you’re likely researching everything you can do to prevent or delay it.
For many people, the solution to this problem could lie in filing bankruptcy. But does bankruptcy help you avoid foreclosure? If you want to know the answer to this question, you’re in the right place.
In this guide, we’ll teach you everything you need to know about how to avoid foreclosure.
We’ll also get you in touch with a foreclosure defense attorney who can help you formulate a strategy for your specific needs. Let’s get started!
Difference Between Foreclosure and Bankruptcy
Many often confuse bankruptcy and foreclosure because both concepts typically deal with individuals in dire straits regarding their finances.
Let’s start with foreclosures. A foreclosure happens when you can’t make payments on your mortgage loan. However, there are essential differences between foreclosures and bankruptcies that you need to know.
Mortgages are secured loan that uses the house you’re living in as collateral. So, when you stop paying, the lender will seize the house and sell it in a foreclosure sale to get their money back. That means that your lender is the one that’s initiating the foreclosure process, which is different from filing for bankruptcy.
Bankruptcy is a form of debt relief for people who can’t make their payments (whether from credit cards, student loans, or personal loan debt). The main difference between the two concepts is the short and long-term consequences.
When you file for bankruptcy, short-term consequences affect your credit. However, you benefit from being freed from certain debts in the long run. Sadly, the same isn’t valid with a foreclosure.
A foreclosure will cause you to lose your home and ruin your debt in the short term. In the long-term, you can also be held responsible for any money you owe even after the home sale. So, it’s always worth seeking alternative solutions to foreclosure if you can.
If you’re facing a foreclosure in New Jersey, then your first step is to reach out to a counselor. These professionals at local housing agencies can usually get you on the right path.
What Are the Different Types of Bankruptcy in New Jersey?
Before we learn more about how bankruptcy can stop a foreclosure we need to know more about the two main types of bankruptcy in New Jersey; let’s start with Chapter 7 bankruptcy.
This type of bankruptcy is the best option for people that don’t have a job or enough income to pay their debts. You will be assigned a trustee to sell off all your property and assets.
In return, most of your unsecured debts will be wiped, thus giving you a clean start. It’s important to note that with a Chapter 7, although your mortgage debt could be discharged; creditors can still claim your house.
Next, there’s Chapter 13 bankruptcy. Unlike Chapter 7 bankruptcy, the debt is not discharged. Chapter 13 bankruptcy is the best option for people with a good, steady income but not enough to pay back debts.
You must create a repayment plan for the court and its creditors. If they approve, you will begin to pay the debt off over three to five years. Instead, it is reorganized into a payment plan that the debtor can handle.
While Chapter 13 takes years, Chapter 7 bankruptcy only takes three to four months. But which of these options are best for when you’re facing foreclosure? Let’s take a closer look.
Can Bankruptcy Stop Foreclosure?
The answer is yes; in some cases, bankruptcy can stop foreclosure from happening. However, ultimately this depends on two factors: the type of bankruptcy you’re filing and the amount of equity you have in your home.
Let’s start with what a Chapter 7 bankruptcy can do for you regarding foreclosure. When you declare bankruptcy you will get an automatic stay. Temporarily, this stops creditors from collecting on most debts.
You might buy some time to get up-to-date on your mortgage payments. Alternatively, you can also try to submit a mortgage modification with the loan company.
Chapter 7 alone won’t get you out of a foreclosure. But, it can give you some time to get back on track. We’ll go more into this in another section.
Chapter 13, however, is much more effective in preventing foreclosure. In this case, the protracted nature of Chapter 13 works in your favor. You’ll ultimately have up to five years to fully catch up on your payments.
As long as you make all of your monthly Chapter 13 payments, the mortgage company can’t foreclose on you. So, this type of bankruptcy is much better for fighting back against foreclosure.
Chapter 13 bankruptcies are also much more complicated. So, you will need the help of a Chapter 13 attorney if you want any hope of navigating the process.
Why Should You Hire a Foreclosure Defense Attorney?
The state of New Jersey uses judiciary foreclosure laws. That means the lender needs to sue you in court to start the foreclosure process.
Before the proceedings begin, you will have a chance to respond to the foreclosure charge and potentially get out of it. A foreclosure defense attorney is vital when you’re in court for foreclosure.
For one thing, they can advise you on your situation’s best course of action. More importantly, it will help you decide on a strategy to stop the foreclosure in New Jersey or minimize its consequences.
There are many different strategies that an attorney might use to defend you during a foreclosure.
We’ll be going over some of them in this section. But, if you want to learn about this type of legal help in more depth, then make sure to check out our guide here.
Mortgage Modifications
We mentioned mortgage modifications earlier in the article; it is an option you can take during bankruptcy (or before it) to change the terms of your mortgage to more favorable conditions.
A modification can take a while, usually between three and eight months. However, if it’s successful, it can result in a lower monthly payment and interest loan.
Remember that while the monthly amount might be smaller, the loan repayment period will be longer. Remember that mortgage modifications can be challenging when your lender is trying to foreclose on you.
That’s why you should make sure to hire an excellent attorney like the kind at Sadek Bankruptcy Law Offices.
Pre-Foreclosure Forbearance Plan
In some cases, through a forbearance plan, a foreclosure may be postponed. The foreclosure will be put off as long as the reinstatement amount on the mortgage is paid over a short time.
In many ways, this strategy is similar to a mortgage modification. The main difference is that a mortgage modification alters the terms of your mortgage contract.
On the other hand, a forbearance plan extends the time you can pay arrearages by six months. During this time, you will still be expected to keep up with your regular monthly mortgage payments.
Negotiate a Short Sale
A short sale can occur when the homeowner owes more of their mortgage balance than their house is worth on the market. The homeowner is asking the mortgage company to accept a deal where they would be losing money.
For example, let’s say your mortgage balance is $250,000, but your home is worth $200,000. You would ask the mortgage company to accept a deal where you’re short $50,000.
If you have a good attorney, you may get the lender to agree to a short sale.
In that event, all of your debts surrounding the mortgage would be clear. The act would hurt your credit score a little. But, it’s much worse than what a foreclosure would do to it.
Need to Avoid Foreclosure in New Jersey? Contact Sadek Bankruptcy Law Offices
We hope this article helped you learn how to avoid foreclosure by filing for bankruptcy in New Jersey. While bankruptcy can help people in certain situations, it’s important to note that it’s not the best option for everyone.
That’s why we always recommend meeting with a foreclosure defense attorney first. If you live in the Burlington, Camden, or Atlantic counties, then you can’t go wrong with Sadek Bankruptcy Law Offices.
We help you consider all bankruptcy alternatives before making a decision. So, if you’re ready for the empathetic legal advice you deserve, then contact us today.