Will Bankruptcy Stop a Foreclosure?
Dec. 11, 2021
As the federal government’s programs to help homeowners during the pandemic wind down, those who skipped payments will have to resume their monthly mortgage obligations and also account for any past-due amounts. Some homeowners may find it impossible to do either and may end up in foreclosure.
Data from August 2021 suggests foreclosures may be on the rise in Nevada. In that month, the state’s foreclosure rate was the second-highest nationwide behind only Illinois. Foreclosure filings in Nevada stood at one for every 4,877 units compared to Illinois’ one in every 3,848. Nationwide, the average was one in every 8,677 units.
If you’re facing foreclosure or fearing that it may be on the horizon, and you’re in or around Reno, Nevada, contact the Law Office of Scott N. Tisevich to discuss your options.
Chapter 13 of the bankruptcy code offers one way to make up missed payments and then continue honoring your monthly mortgage obligation. There may also be an avenue to retaining your home even under Chapter 7, the liquidation bankruptcy option.
The Foreclosure Process in Nevada
Foreclosure, the forced sale of your home because of delinquency in payments, is governed by both federal and state law.
Generally, when you take out a mortgage in Nevada, you will sign both a promissory note (agreeing to pay back the money borrowed) and a deed of trust. The deed of trust gives the lender a security interest in the property and almost always includes a power of sale clause. This clause gives the lender the power to sell your home without getting court approval.
Mortgages generally include a grace period of 10 to 15 days before your payment is considered late. If it is late, the lender will tack on late fees.
If you still haven’t made the payment after 36 days, the lender by law is required to contact you to offer “loss mitigation” options, in other words, ways to make up your delinquent payment. Then, after 45 days, the lender must inform you in writing of your “loss mitigation” options and assign someone to explain everything to you to help you navigate the process.
Under federal rules, the lender cannot begin foreclosure proceedings until you’re 120 days late in payments. Even then, the lender has to send you various notices, including a breach notice, a pre-foreclosure notice, a notice of foreclosure, a notice of default and election to sell, a danger notice (60 days prior to the date of sale), and finally a notice of sale 20 days prior to the auction date.
If you add everything up, that means foreclosure sales take at least 180 days from the date of your first missed payment.
Chapter 13 Bankruptcy and the Automatic Stay
When you file for bankruptcy, the court will issue what is called an automatic stay. The stay stops creditors from contacting you and halts, at least temporarily, any repossession or foreclosure proceedings. Secured lenders, however, can petition the court to restart their collection efforts, so the stay is not permanent. It just gives you enough time to consider your options.
Chapter 13 of the bankruptcy code is known as the wage earners’ option. Under Chapter 13, you can keep everything provided you have enough disposable monthly income to pay off your consolidated, unsecured obligations over a three- to five-year period. Note that your reorganized debts likely won’t be paid in full, but your obligations will end when you’ve finished your payments. You will then be discharged from bankruptcy, and your unsecured debts will be gone.
You still have to make your regular car and home payments throughout the process, however, as secured debts are treated differently. If you are behind in payments on either secured debt – home or car – you can include that amount in your reorganized debt load, but then you have to keep paying your regular monthly car note and mortgage obligation.
Chapter 13 is certainly one way to keep your home and avoid foreclosure.
The Homestead Exemption and Chapter 7
Under Chapter 7 of the bankruptcy code, all your non-exempt assets will be sold off to satisfy your debts. Nevada offers generous exemptions. You can exempt a car up to $15,000 in equity. A home can be exempted for up to $605,000 in equity. If you own a home valued at $550,000, for instance, your home will be exempt from seizure, but if you aren’t making your payments, the lender can still foreclose.
Here again, however, there are qualifications you must reach before using the homestead exemption. First, you must file a homestead declaration. Second, to use Nevada’s exemptions in bankruptcy, you must have resided in the state for 730 days. Finally, you must have occupied the property for 1,215 days or more.
If you can’t meet these requirements, you are then left with the federal homestead exemption of $170,350. If you haven’t lived in the state for 730 days, then you must use the property exemption from the state where you previously resided.
Hire an Experienced Nevada Bankruptcy Attorney
Filing for any chapter of the bankruptcy code will immediately stop foreclosure, but what happens after that is the essential consideration.
If you have enough disposable income to do a Chapter 13 filing while still honoring your secured debts, you’re on track to keep all your possessions. Under Chapter 7, a homestead exemption is the main route to retaining your home, but you still have to honor your mortgage obligations.
If you’re falling behind in your payments or are already receiving threatening notices from your lender, contact the Law Office of Scott N. Tisevich immediately to discuss your options under bankruptcy.
Scott N. Tisevich proudly serves clients throughout Reno, Nevada, and the surrounding communities of Churchill County, Lyon County, Carson City, Douglas County, and Las Vegas.