Answers to Questions About Bankruptcy and Foreclosure in Atlanta

The following are questions from a real person in Atlanta who is facing a foreclosure and has questions about how bankruptcy works to save the home. All personal information has been redacted for privacy purposes.

1. Our mortgage is a fixed rate mortgage that becomes an adjustable rate mortgage soon. If payments go up anymore, I don’t think we’re financially able to keep the house.
Does Chapter 13 stop the adjustable interest rate? Are there options regarding this?

No, bankruptcy cannot change the interest rate on a home mortgage. You cannot force the mortgage company to decrease those rates. You could try a home loan modification with the mortgage company even while you are in bankruptcy (subject to approval by the court), but there’s not any law that requires the mortgage company to change the terms of the loan.

2. With Chapter 13, are we locked in for 5 years? If we discover it is just too much for us financially, can we convert to a Chapter 7? Additionally, what happens in the event of an unforeseen situation (job loss, serious illness, etc)?

Not necessarily. If you have changed financial circumstances, such as a temporary job loss, illness or unexpected expense, you can ask the court to allow you to suspend Chapter 13 payments. Or, if your financial change is permanent, you can convert to a 7 if there is a financial change.

3. Please review what happens with both Chapter 13 and Chapter 7 if I receive a settlement from my injury lawsuit.

In either case, you have to have your personal injury attorney approved as special counsel through the bankruptcy court. In a Chapter 13, they want you to pay your money into the 13 bankruptcy case. If it is enough to pay off whole case, the case is closed and done. In a chapter 7, the bankruptcy trustee takes an interest in the claim and will use the proceeds of the settlement to repay creditors. Any surplus will be sent to you.

4. Regarding Chapter 7: If the decision is made to go this way and let the house go, how long would we have to move? The 6 months it takes for this process, or less or more time?

If you file a Chapter 7 bankruptcy case and the Chapter 7 trustee takes an interest in the property and wants to sell it, you can probably stay there for as long as it takes for the trustee to sell the house. If the trustee takes no interest, I would say you have a minimum of 3 months before the bank will foreclose again (not guaranteed).

5. With this scenario, would we not pay the mortgage until we move?

Exactly, you wouldn’t pay because your personal liability is wiped out on the debt upon the close of the case. So, unless you want to prevent foreclosure, you don’t have to worry about paying.

6. With Chapter 7, does this also stop the foreclosure for now?

Yes, so long as you file before scheduled foreclosure date. Eventually, the bank will foreclose again if you are in default.

7. With Chapter 7, who sells the house?

The house is only sold if the trustee (person assigned to watch over your case to see if there are assets that can be liquidated to repay creditors) decides that there is an interest in the property. If the trustee decides there is no equity in the house and s/he abandons the interest in the house, then the mortgage company will come in and foreclose for default on payments.

If you are looking for foreclosure defense or bankruptcy advice from an Atlanta attorney, call the Law Offices of Charles Clapp at 404.585.0040 for a free consultation.