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Bankruptcy and Foreclosure

Many people in foreclosure, who have equity in their home, attempt to negotiate with the bank for a forebearance agreement, a short sale, or a refinance with a different lender to bail them out before the home is sold at foreclosure. It’s getting more and more difficult in this climate to accomplish this. In the meantime, the balance owed grows larger by the minute, and the bank attorneys charge full steam ahead towards an auction.

One way to stop the foreclosure train would be to file a Chapter 13 bankruptcy. However, it will only be a temporary fix, unless you qualify for the action. You would need to show that your “disposable income” (based upon an analysis of your income versus expenses) allows you to pay the arrears of your mortgage over a five year period, while you continue to pay the current amount due, plus your other necessary expenses. When the arrears are large, and you haven’t been able to keep up with payments and property taxes, or possibly other credit card debt, this may be an impossibility. The case would then be dismissed, and the foreclosure stay is lifted.

A Chapter 7, where there is no property to save, is not as difficult to qualify for as one may think. Most of my clients who have above average salaries and children qualify for a full Chapter 7, without having to pay back any debt. Of course, your credit rating will be affected for approximately seven years, but many people are abile to rebuild their credit rather quickly after a bankruptcy.

There are additional requirements since the law changed in October 2005. My clients find the credit counselling to be quick, easy and inexpensive. You simply go on line, or speak with a credit counsellor on the phone for approximately fifteen minutes, and receive a certificate. This must be done within six months of the petition filing. If you were required to file tax returns, they must be available for the past three years, and the current year of filing the petition. I would also recommend keeping copies of your credit card and loan statements, as well as bank statements. They will make the filing easier, and may be required by the trustee. You will also need current pay-stubs, or an affidavit from your employer regarding your year-to-date salary. Any luxury items charged on a credit card within two months of filing are not dischargeable. I would recommend ceasing all credit card activity for that two month period.

The only appearance necessary is called a 341 meeting before a Trustee. The trustee questions you regarding the veracity of the petition. Since the new law, it is possible that your petition will be the subject of an audit, to discourage people from making misstatements on the Petition.

Cynthia M. Burke,