In many cases, a mortgage lender begins home foreclosure proceedings after just two missed payments. Sometimes the Minnesota lender is a little more patient, but that’s certainly not true in all cases.
Pre-foreclosure basically starts a financial landslide. The moneylender usually sends an acceleration notice very early in the process. Once the lender issues that notice, the bank no longer accepts partial payments. So, the homeowner goes further and further into delinquency with each passing week.
Theoretically, it is possible to stop this process outside of bankruptcy with a Temporary Restraining Order. But before they grant TROs, Minnesota judges require substantial evidence of fraud or some other wrongdoing. Back during the peak of the mortgage crisis, such evidence was relatively easy to obtain. But now, many lenders have cleaned up their acts, at least a little.
So, a Chapter 13 bankruptcy may be the only way to save your house. But a repayment plan Minnesota bankruptcy can do more than stop foreclosure. It can also give you plenty of time to repay the delinquent amount and, in many cases, even lower your house payment.
How the Automatic Stay Stops Foreclosure
As soon as moneylenders receive notice of the Minnesota bankruptcy filing, the automatic stay takes effect. Now that the Supreme Court has watered down the Fair Debt Collection Practices Act, Section 362 of the Bankruptcy Code is about the only way to prevent:
- Home foreclosure,
- Vehicle repossession,
- Wage garnishment
- Some evictions, and
- Creditor harassment.
Unless the debtor is a serial filer, the automatic stay takes effect immediately and remains in effect as long as the Chapter 13 is pending. A moneylender can ask the bankruptcy judge to dissolve the stay. But to do so, the moneylender needs to show evidence that the collateral is in danger. Unless the homeowner has done something like threaten to set the house ablaze, such evidence is almost never available.
At Kain & Scott, we electronically file all our Minnesota bankruptcy petitions. So, if the moneylender is plugged into the Electronic Case Filing system, and most are, the lender receives instant notice. But just to be on the safe side, we often send separate notices to creditors. We also send separate notices no non-bank third parties, such as a sheriff who will auction off the property.
The Protected Repayment Period
Normally, the Chapter 13 paperwork also includes a proposed repayment plan. Minnesota debtors have up to five years to bring secured debt delinquencies, like past-due home mortgage payments, to zero. The trustee (the person appointed by the US Trustee to manage the chapter 13 case) must approve the plan. But normally, the trustee approves all plans which devote most or all disposable income to debt repayment and pay off the entire amount before the repayment period expires.
Creditors have some say in this process, but not much. For the most part, if the repayment plan meets the minimum requirements, they must accept it. They must wait to get paid just like everybody else.
How a Minnesota Bankruptcy Can Lower Your House Payment
Bankruptcy’s dispute resolution system can lower your house payment, if there is a legitimate dispute as to the amount due. There might also be a dispute as to the events at the house closing, specifically with regard to things like predatory lending. Most judges refer these disputes to mediation. In that forum, the moneylender has a duty to negotiate in good faith. “Pay what we say you owe and pay it now” is not a good faith bargaining position.
A strip-off is also available in a Chapter 13. Lien stripping is a rather obscure legal loophole which involves reclassifying home mortgage debt.
Assume a homeowner’s residence is worth $110,000. She has $120,000 left on her mortgage. She also has a $40,000 Home Equity Line of Credit (HELOC). Her home’s value (110k) is not enough to secure both loans (160k), and there is no equity to secure the HELOC. So, a Minnesota bankruptcy can convert the HELOC into an unsecured debt, making it dischargeable in bankruptcy. That move could save the homeowner thousands of dollars a year.
A Minnesota bankruptcy can provide both immediate and long-term relief with regard to your past-due mortgage. For a free consultation with an experienced bankruptcy attorney in Minneapolis, contact Kain & Scott. Convenient payment plans are available.