If you’re facing foreclosure in Denver, you’re not alone. We’re here to help you answer the question: can filing for bankruptcy in Colorado stop foreclosure? Perhaps your livelihood has been affected by the COVID-19 pandemic; maybe you or a loved one are facing a health crisis or simply struggling with debt. These and many other reasons can lead to good people not making their mortgage payments and could be facing foreclosure. The good news is, if you act fast, you have options to stop the foreclosure.
Automatic Stays Stop Foreclosure
When filing for bankruptcy, an automatic stay is created, which is an injunction from the court to stop collection efforts immediately. This stay allows you to keep your property for the time being while you work out how to resolve your debt with the courts. Keeping the home might not always be an option in the end, but this stay does give you time to work with your attorney to work out the best solution for you and your family.
If you have already had a bankruptcy case dismissed in the past year, the stay will only be effective for a 30 day period. If you’ve had two dismissals in the past year, the stay won’t go into effect at all. That’s why it’s so important you work with a reputable bankruptcy attorney, like Berken Cloyes, PC.
This stay applies regardless of whether you have filed for Chapter 7 or Chapter 13 bankruptcy. Let’s take a look at what each of those options might look like.
Chapter 7 is often referred to as “total liquidation” as this is where all of your non-exempt or unprotected assets get sold off by a court-appointed trustee to pay back your creditors. Filing for Chapter 7 bankruptcy doesn’t give you the chance to get current on your mortgage, but it might allow you to keep your house in some cases (such as eliminating high credit card debts and now being able to afford your mortgage payments).
Chapter 7 may also give you the chance to sell your house to pay off your debts, allowing you to retain much of the equity in it. This option is often preferable to a foreclosure, as it gives the homeowner more control over the transaction, allows them to keep some of the equity they’ve earned, and gives time to arrange for alternate housing.
There is a Colorado law referred to as the “homestead exemption”, which allows homeowners to protect up to $75,000 in equity in their home. For those homeowners who are over 60 years old or disabled, the amount raises to $105,000. So, if the homeowner retained less than that amount after selling the house and paying any fees/closing costs, the bankruptcy trustee would not sell the house.
However, if you don’t have a way to pay your mortgage moving forward, the court may still let the foreclosure move forward. This is where having a powerful attorney on your side becomes more than a convenience. Crafting your defense is key to keeping your home if that is your goal.
Chapter 13 is where you work out a payment plan with the court, in which you are given 3-5 years to pay a set amount each month towards your debts. This option is great for those who want to pay back what they owe; they just need a plan to do so.
For example, this might be a good choice when the homeowner has missed payments due to financial hardship and can’t catch up on those but would be able to make the normal mortgage payments moving forward and keep the house. The amount owed is called the “arrears,” which would be rolled into the total debt paid off each month over the course of the repayment plan.
For homeowners who have a second mortgage on their home, this may be eliminated through the Chapter 13 bankruptcy process, if the home is worth as much as, or less than, your first mortgage.
Of course, each person’s case is different, and a stay won’t apply to every creditor in every situation. Consulting with a qualified and reputable Denver bankruptcy attorney is the only way to determine your options for your specific scenario.
With the rising cost of living and the challenges so many homeowners are facing in this day and age, it can be hard to stay current on your mortgage. You shouldn’t have to choose between keeping your family from going hungry and keeping a roof over their heads. It’s no wonder why nearly half a million homeowners in America faced foreclosure just last year.
If you wait too long to take action, the number of options available to you may be limited, so as soon as you have received the threat of foreclosure, you’ll want to reach out to our office for a free case evaluation. With more than 35 years of experience, our attorneys have helped countless people in Denver get out of debt. We will fight to help you keep your home or to find another satisfactory solution for your family.