SCOTT R. NEEDLEMAN BANKRUPTCY AND FORECLOSURE DEFENSE ATTORNEY

CAN BANKRUPTCY STOP A FORECLOSURE?

A Look At How Does Filing Bankruptcy

In Ohio Halt The Foreclosure Process

Can Bankruptcy Stop a Foreclosure? thecolumbusbankruptcylawyer.com 2

For most people, owning a home remains the American dream. Once you

have realized that dream, if a financial crisis threatens the future of the

dream it can be emotionally devastating. The recent national financial crisis

has led to a record number of foreclosures across the country as well as a

significant increase in the number of bankruptcy petitions filed in recent

years. If you have been notified by your lender that foreclosure

proceedings are forthcoming, filing for protection under the U.S.

Bankruptcy Code may be a solution; however, it is not an automatic fix for

all homeowners facing foreclosure.

UNDERSTANDING THE FORECLOSURE PROCESS IN

OHIO

Most borrowers depend on financing to purchase a home. When you take

out a mortgage loan to finance the purchase of your home you agree to

pay that loan back in monthly payments. You also secure the debt with

your home, meaning that the lender has a legal right to foreclose on your

property should you default on the loan. Contrary to what many people

believe, a borrower defaults on a loan when he or she is a day late on a

payment. Most lenders, however, do not even consider foreclosure

proceedings until a borrower is two to four months behind on the

payments.

In Ohio, a lender usually files a foreclosure Complaint after a borrower has

missed three or more payments. A borrower then has 28 days to file an

Answer to the Complaint. Failing to file an Answer can lead to a rapid

Summary Judgment against the borrower and subsequent sheriff’s sale of

the property. If an Answer is filed the borrower may be granted additional

time to try and work out a resolution with the lender. Eventually, if no

resolution is forthcoming the court will grant the foreclosure and the lender

will schedule the property for Sheriff’s sale. After the sale there is a

redemption period during which the borrower has the right to redeem, or

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buy back the property. Once the redemption period has expired the

borrower must vacate the property.

HOW DOES FILING BANKRUPTCY HALT THE

FORECLOSURE PROCESS?

When you file a bankruptcy petition the court orders an automatic stay as

soon as the petition is filed. An automatic stay is an order from the court

which is sent to all creditors ordering them to cease and desists all efforts

to collect on the debt owed to them. As long as your lender is listed on the

schedule of creditors the notice of automatic stay will be served on the

lender. At that point, the foreclosure process must stop. There are a limited

number of exceptions to the automatic stay. For example, you cannot

repeatedly file and dismiss bankruptcy in an attempt to drag out the

foreclosure process indefinitely; however, in most cases the automatic stay

halts the foreclosure proceedings for 30 days. At the end of the 30 day

time period the lender may request the bankruptcy court lift the automatic

stay so that the foreclosure proceedings may resume.

CHAPTER 7 BANKRUPTCY EXEMPTIONS

As mentioned previously, the initial filing of a bankruptcy petition halts the

foreclosure process but it may resume in 30 days if nothing else is done to

resolve the default. In a chapter 7 bankruptcy, also known as a liquidation

bankruptcy, a debtor’s non-exempt assets may be sold to pay debts owed

by the debtor. Ohio, however, has a very liberal homestead exemption

which allows a debtor to exempt up to $132,900 in real property. This

exemption though does not protect the home from sale through a

foreclosure proceeding. The exemption only protects the home from sale

through the trustee as part of the bankruptcy. Filing bankruptcy, however,

can free up money by discharging other debts which may allow the debtor

to catch up with the mortgage. At the end of a chapter 7 bankruptcy, with

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few exceptions for debts that cannot be discharged, all debts are

discharged, meaning the debtor no longer owes the debt.

A BRIEF OVERVIEW OF CHAPTER 13 BANKRUPTCY

In a chapter 13 bankruptcy, commonly known as a “wage-earners”

bankruptcy, the debtor is required to develop a plan to repay the majority

of his or her debts over an extended period of time -- usually three to five

years. In a chapter 13 bankruptcy, even non-exempt assets can typically

be protected as long as the debtor successfully completes the repayment

plan. Debts remaining after the successful conclusion of the repayment

period are discharged.

RESOLVING THE DEBT

Whether a debtor files a chapter 7 or chapter 13 bankruptcy, the

underlying debt to the lender must be resolved to avoid foreclosure. The

automatic stay can be looked at as an immediate “stop gap” measure to

buy a debtor time; however, it is not a permanent solution to foreclosure.

If you foresee a change in circumstances in the very immediate future, a

chapter 7 bankruptcy may provide you with enough time to catch up your

payments as well as may free up income by discharging other debts. Many

debtors who wish to save a home that is in foreclosure, however, turn to

chapter 13. In a chapter 13, your attorney, along with the court, may be

able to assist you to work out a loan modification or reduced payments as

part of the repayment plan. Often, filing bankruptcy prompts a lender to try

and work out a solution that does not result in foreclosure.

SECOND MORTGAGES AND DEFICIENCY JUDGMENTS

If you have a second mortgage on your home, and your home is now

worth less than the amount owed on the first mortgage, your second

mortgage may now be considered an unsecured debt and may be subject

to discharge through a chapter 13 bankruptcy. Becomes home values

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plummeted in recent years, this is not an uncommon scenario. The reduced

value of your home though could be beneficial in bankruptcy if you are

able to discharge a second mortgage.

Another way that bankruptcy may be able to help is if you owe a deficiency

judgment after your home is foreclosed on and sold. Borrowers frequently

are unaware that this is possible. Imagine, for example, that you owe

$150,000 on your mortgage and the lender forecloses on the loan. The

home is subsequently sold through a sheriff’s sale for $120,000. You may

legally be responsible for the remaining $30,000 owed to the lender. This

deficiency amount can be discharged through bankruptcy.

Each foreclosure scenario presents a unique set of facts and circumstances.

Be sure to consult with an experienced Ohio bankruptcy attorney

immediately if you receive a notice of foreclosure or if you are concerned

that you are headed toward foreclosure because you are behind on your

mortgage payments.

Save the Dream Ohio, Understanding the Foreclosure Process

Ohio Attorney General, Foreclosure Frequently Asked Questions

Pine Tree Legal Assistance, Bankruptcy: Is It the Right Choice for You

CNN Money, Bankruptcy Can Save Your House from Foreclosure

Can Bankruptcy Stop a Foreclosure? thecolumbusbankruptcylawyer.com 6

About the Author

Scott R. Needleman

Every associate at The Needleman Law Office is committed to handling

your case in both a personal fashion and in a professional manner. In other

words, we treat you the way we would want to be treated. We will take a

personal interest in your situation, making sure you understand exactly

what is happening and what options you may have. Then we’ll fight to

ensure the best possible outcome for your situation.

The Needleman Law Office 5300 E. Main, Suite 109 Columbus, OH 43213 614-575-1188 http://thecolumbusbankruptcylawyer.com/