mdoLaw.com Bankruptcy Blog
Index of Blog Entries

What are my Options to Stop Foreclosure?
(January, 2012)

The only really 'sure' way to stop a foreclosure is to file a Chapter 13 'repayment' style bankruptcy which allows you to catch up on your missed payments over a period of several years. A Chapter 7 'fresh start' bankruptcy will stop a foreclosure, too, but usually will not help you keep your house when there was a foreclosure pending at the time of filing the bankruptcy.

However, a provisional loan modification MAY stop a foreclosure action - although it also may not. Banks often state that once a provisional or trial loan modification plan has begun, that the bank will either cancel or suspend your foreclosure sale. The risk though, and the risk is huge, is that if the bank does proceed with your foreclosure sale, in every case that I know of you do not get your house back. Its been sold. You can only sue for damages - which takes about 19 months to get to trial. Even if you do have a cause of action to get the house back, do you want to risk that?

Bankruptcy stops foreclosure provided that you file before the foreclosure sale takes place.
January 12, 2012

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Will Filing Bankruptcy Stop Foreclosure
on my House?
(January, 2012)

Yes.

But there are exceptions. If you have been in any kind of bankruptcy in the past 12 months, you should speak with a bankruptcy attorney about how the prior filing will affect a second or third filing.

If you file a chapter 7 bankruptcy and you are behind on your payments, the bank will typically either a) file a "Motion for Relief from Stay" (where they ask a judge to allow them to proceed with the foreclosure even though you are in bankruptcy) or b) wait until just after your bankruptcy is over and then resume the foreclosure process. Filing a chapter 7 when you are behind on your mortgage payments will delay the foreclosure, possibly for several months but it does not prevent the lender from ever foreclosing; it just makes them wait for a bit.

If you file a chapter 13 bankruptcy, keep up on your monthly chapter 13 plan payments, and get your chapter 13 plan confirmed (confirmation takes a few months after filing), you should be in great shape to keep your house and stop the foreclosure from coming back. In a chapter 13, there are still some possible issues that could entitle the lender to file a "Motion for Relief from Stay" (see above) but usually as long as you are making your monthly payments and have filed a chapter 13 plan that covers your lender's concerns, they will prefer to receive your monthly payments and not try to resume foreclosure on your house.
January 3, 2012

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Can My Bank Still Foreclose While I am in a
Trial Loan Modification?
(December, 2011)

Yes.

If there is a Trustee's Sale Date scheduled, you should assume that the Trustee will sell the property on that day. Until you have it in writing that the foreclosure sale is either cancelled or postponed, you should assume that the foreclosure sale will still take place.

Banks frequently sell properties when there is a trial or provisional loan modification in place. In my understanding, the loan modification and the foreclosure departments in most large banks don't talk to each other very often.

The only way to REQUIRE the cancellation or postponement of a foreclosure sale is to file a chapter 7 or chapter 13 bankruptcy. Filing a bankruptcy will (in the short run) virtually always stop a foreclosure sale. Many times banks will continue the sale date to see if you stay in the bankruptcy system. For example, if you fail to show up for your required bankruptcy hearing, your case might be (probably will be) dismissed, and if the bank has continued your sale date and has not cancelled it, they will not need to start the whole foreclosure process over again.

Do you want to be in the driver's seat calling the shots or do you want to rely on your bank? Your choice but I know what my answer would be.
December 22, 2011

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My Notice of Trustee's Sale says that I have until eleven days prior to the sale date to pay off the missed payments and cancel the foreclosure.

If I file bankruptcy after the eleven days but before the sale, will that stop the foreclosure sale?
(December, 2011)

Yes!

Here's why:

When you file either a chapter 7 or a chapter 13 bankruptcy petition (what a bankruptcy filing is called), you are granted what is called the "Automatic Stay." This means that virtually all collection activity against the bankruptcy filer (you) is stopped, including the mortgage company's or bank's action to foreclose on your house. The eleven days issue doesn't matter as long as you file BEFORE the sale takes place.

If you had a Notice of Trustee's Sale pending, you must have missed some mortgage payments, thus whether you file a chapter 7 or chapter 13 goes a long way towards dictating whether or not you keep your house. If there is an arrearage (the total of the missed payments), then if you want to keep your house, you need to file a chapter 13. If there is an arrearage and you file a chapter 7, you must plan to turn over the property at some point (i.e. leave). Filing a Chapter 7 when there is an arrearage will delay the foreclosure, perhaps for as long as many months, but you should count on the foreclosure sale coming at some point after you file a chapter 7 in that situation.

We have many clients who keep their houses during and after a chapter 7 bankruptcy but that only works when you are up to speed on all of your mortgage payments.
December 15, 2011

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Will My Tax Debt Go Away if I File Bankruptcy?
(August, 2011)

I am frequently asked if taxes will 'go away' when someone files bankruptcy. The answer is that they MAY go away. Many other bankruptcy law firm sites simply tell you that taxes don't go away in a bankruptcy; that advice is probably coming from bankruptcy firms that don't want the extra work of advising you regarding your tax debts.

Here’s the deal on whether the taxes go away or not. You can discharge income taxes a) if the returns were due more than three years ago, b) if you actually filed the tax returns at least two years before the bankruptcy, and c) if the tax has been assessed for more than 270 days.

There are several circumstances that stop the above time periods from running. If you filed bankruptcy before, those time periods are stopped for the duration of your bankruptcy. If you filed an offer in compromise with the IRS, that too will stop those time periods from running.

Also, when the IRS gets impatient with you for not having filed your tax return, they can file one for you (i.e., a "substituted return"). They guess how much you owe based on W-2s or 1099s that have been filed for you and they do not give you any breaks in preparing your return (big surprise). If the IRS files a substituted return for any tax year, you can’t discharge that year’s tax (unless you live in the 6th Circuit; there is a split among the circuits on that issue).

Most clients will not remember exactly when they filed and virtually no one knows when a particular year's tax was assessed. You can call 1-800-829-1040, wait on hold, and then ask for an "account transcript." Or better and quicker, you can visit the IRS at one of the local IRS branch offices and just ask them in person for your transcript.

By the way, note that I started this page by talking about "income taxes" and not employee withholding taxes, trust fund taxes, and/or 941 taxes. You owe trust fund taxes on money you withheld from your employees’ paychecks and then did NOT send in to the IRS. The IRS considers those withheld funds to be money that you stole from the IRS. Not surprisingly, those taxes do not go away in a bankruptcy.
August 25, 2011

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What Happens With The Second Loan
If My House Is Foreclosed?
(May, 2011)

Provided that you are not paying them, you will most likely be sued by the second mortgage or Home Equity Line of Credit ("HELOC") lender. Even if you are paying them and have missed no payments, they can probably sue you anyway because by virtue of having lost the security for the loan (your house) you are likely in breach of your promissory note or deed of trust for the second loan.

That's pretty much it. They are not required to sue you nor are they required to sue you right away but they are definitely able to do so as soon as the house is foreclosed.

They have to sue you first (and win) but assuming that they sue and they win, they will most likely garnish your wages but they can also come after your assets (although that is less likely).

Filing bankruptcy can address many of the above problems. In a Chapter 7 bankruptcy, upon successful completion of the bankruptcy process, your obligation on the promissory note that went along with the 2nd mortgage is discharged (cancelled). In a Chapter 13 bankruptcy, you may be able to 'strip' the 2nd lien away from your property and only pay a reduced portion of the 2nd mortgage.

You have many options but waiting for them to sue you is a bad strategy. Then you end up with, in order, a foreclosure, a lawsuit, a wage garnishment, and then, finally, a bankruptcy. That is the worst order of events that you can have.

Call us before you head down that path.
May 27, 2011

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Washington State Passes the
Mortgage "Foreclosure Fairness Act"
(May, 2011)

On April 14, Washington became the third 'non-judicial' foreclosure state to pass a mortgage mediation program. Under the new law, once a homeowner becomes delinquent, but before the loan servicer can file a notice of default, the servicer must send a letter to the homeowner asking the homeowner to contact the servicer and urging the homeowner to contact a neutral housing counselor or attorney.

The effective date is the Foreclosure Fairness Act is July 22, 2011.

If you want to read more, you can read House Bill 1362 (2011) here.
May 9, 2011

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Bank of America Suspends Foreclosures Nationwide

The Bank of America announced yesterday, Friday Oct. 8, 2010, that it would temporarily halt home foreclosure actions in all fifty states.

The bank has apparently stated that the halt may last for a few weeks during which time the bank will verify the information on its thousands of foreclosure documents.

This is a bit odd as it pertains to Washington State homes. The rationale for Chase and GMAC suspending their foreclosure activity a few weeks ago was for those two lenders to review the accuracy of the COURT filings in the 23 states where foreclosures are primarily done through the court system.

Washington is not a state where most foreclosures are processed through the courts. In Washington, lenders use what is called a "Non-Judicial Foreclosure" system.

What does this mean to you as a Washington State homeowner? In my mind, it remains to be seen if Bank of America is following suit and suspending ALL of its foreclosure actions nationwide or only those in the court system (which in Washington State is close to zero).

I will update this when I find out more about the Bank of America Foreclosure suspension.
October 9, 2010

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Mortgage servicers can no longer deny HAMP
loan modifications on the basis of the applicant (you)
being in bankruptcy

Starting today, June 1, 2010, mortgage servicers may no longer deny a HAMP loan modification to borrowers simply because the borrower is in a chapter 7 or chapter 13 bankruptcy.

Download the new Treasury Supplemental Directive 10.02 for more information.

You still have to ask for the modification; this change does not mean that you automatically receive the modification. In fact, there are still a host of other reasons why you might not qualify.

Which is why you would do well to speak to a chapter 13 bankruptcy attorney: so that you have a backup plan in place for when the foreclosure sale date is imminent and your loan modification people are still saying "any day now" (but not giving you the permanent modification).
June 1

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Will filing Bankruptcy ruin my credit rating?

In most cases: "no." In fact, in my experience filing bankruptcy will actually IMPOVE your credit rating after the bankruptcy process is over (around 100 days).

In most of my client's cases, their credit score has already been damaged from non-payment of bills (or even just non-payment of the first mortgage).

Why might your credit rating go UP after filing bankruptcy?

1) Once your bankruptcy filing is 'approved' (the legal word for this is "discharged") and your case is closed, your credit rating actually goes up almost 100 points, which in many cases turns out to be higher than when you first filed.

2) Once your debts have been discharged, your debt-to-income ratio is significantly lower.

3) You cannot file a chapter 7 bankruptcy for eight more years, so any creditor that extends you credit knows that you will have to pay them.

Although many people feel too proud to go through the bankruptcy process, bankruptcy was designed to give people who need it a fresh start. Wouldn't you rather put this behind you rather than screen all of your calls to avoid the creditors and bill collectors?

btw, if you recently filed bankruptcy and have not completed the process (a chapter 7 bankruptcy usually takes about 100 days from start to finish), there is no way creditors will approve any further credit (except maybe a new landlord).
May 22, 2010

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How long will a Foreclosure affect my ability
to get a home loan?

Possibly forever.

Notice that I did not title this entry "How long does a foreclosure appear on my credit record?" The answer to that question is "up to seven years." Actually, a Foreclosure should not appear on your credit record for more than seven years but you might to need to have the credit reporting bureaus remove it for you. They tend to 'forget' to do that sort of thing. But I digress.

A "Notice of Foreclosure" in Washington State is a recorded document; its recorded at the local County Recorder's Office. Forever. Even if you fully paid off your mortgage payment delinquency before the cut-off date, the best that you can do is get a "Cancellation of Foreclosure" recorded.

You cannot 'un-record' a Notice of Foreclosure.
May 4, 2010

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What is the difference between a Mortgage Trustee
and a Bankruptcy Trustee?

Huge difference. 

The ‘Mortgage Trustee’ (or more accurately, the “Trustee of your Deed of Trust”) is the person or company who is doing the foreclosure proceeding on your house.

The Bankruptcy Trustee is a man or woman who is charged by the Bankruptcy Court to look for non-exempt assets and if there are any in your case, to sell the assets to pay your creditors (in most cases, all of your assets are exempt; in other words you get to keep everything).  They also investigate your financial affairs to make sure that you are telling the truth in your filings.
April 21, 2010

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How long does it take to file Bankruptcy?

Not Long; sometimes as fast as 90 minutes.

We can do an emergency bankruptcy in as little as 90 minutes (although we prefer having more preparation time). An emergency filing gives you all of the same protection that a regular filing does; it stops Foreclosure, wage garnishment, eviction, etc.

Also, we file Bankruptcies electronically, so other than a few federal holidays, there is no "closed" period when you cannot file. The Bankruptcy court uses a 24 clock so we can file for you at any time.
April 16, 2010

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Is it better to Short Sale my house or to file Bankruptcy?

That depends on your situation but from my perspective as a Washington Bankruptcy attorney, it is usually better to file bankruptcy.

Here's why:

Unless your lender agrees to waive off on (forgive) the deficiency (which is unlikely), after the sale you will probably still owe the lender $20,000-$120,000+. Your obligation on your promissory note (or promissory notes if you have a second mortgage) will not be discharged unless your lender agrees to waive the deficiency. Also, if there is a second mortgage with a different lender, the likelihood of the second lender agreeing to waive off on the deficiency is close to zero. There is no motivation for the second mortgage holder to forgive your debt since they will not be receiving any Short Sale proceeds.

The only way that this can work for you is when there is either a) only one mortgage or two mortgages, both with the same lender and b) you convince your lender to forgive the deficiency.

Otherwise, the following will probably happen: you finish the Short Sale without the lender's agreement to forgive the deficiency, you take a 100+ point hit on your credit record, your credit report continues to suffer because of non-payment on your promissory note(s), the lender sues you for non-payment on the promissory note(s), then you have to file bankruptcy anyway. And your credit report is now as low as it can get.

On the other hand, if you had simply filed a Chapter 7 Bankruptcy in the first place, your credit report would be MUCH higher, most (or all) of your other debts would be gone, and you would have been on to bigger and better things much earlier and with much less stress.
April 12, 2010

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Prior Bankruptcy & Foreclosure Blog Entries:

Should I wait to file Bankruptcy to see if my
Loan Modification is accepted?

Can my bank come after me for a deficiency if I let
my house go to foreclosure?

What is a deficiency in a foreclosure action?

If I file a chapter 7 bankruptcy, can I keep my house?

Do I need to take a class before I can file for bankruptcy?

Does it cost more to file bankruptcy if I am married?

Can I file bankruptcy by myself, even when I am married?

Will filing bankruptcy stop (or delay) foreclosure on my home?

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Upcoming Blog entries will include:

Will Bankruptcy stop my Foreclosure if its within eleven days of the Foreclosure Sale Date?
What does it mean to be 'Judgment Proof'?
What is a "Deed in Lieu of Foreclosure"?
Does Bankruptcy stop Wage Garnishment?
Do I still have to pay my Student Loans if I file Bankruptcy?
Should I hire an attorney to help with my Loan Modification Application?
What is worse for my credit score? Bankruptcy or Foreclosure?
What is different about a chapter 13 Bankruptcy?
What kind(s) of debt can I get rid of if I file Bankruptcy?
What type of Bankruptcy can I file if I am unemployed?
If I haven't filed Bankruptcy yet, what can I do to get creditors to stop calling me?
What happens if I am a co-debtor on a loan and I file Bankruptcy?
Will they take all my property if I file Bankruptcy?