Many people in Michigan are still facing financial difficulties caused by the ongoing heath crisis. Perhaps the greatest threat arises from a person’s inability to remain current on paying off the loan that was used to purchase the family home. Most lenders will wait two or three months after the first delinquent payment to begin foreclosure proceedings, but the homeowner has a remedy that can be invoked without waiting for the lender to send a notice commencement of a foreclosure proceeding. The remedy is found in various provisions of the United States Bankruptcy Code.
The automatic stay
The filing of the bankruptcy petition under Chapter 13 immediately and automatically triggers the issuance of an order from the bankruptcy court called the “automatic stay.” A stay is a court order that directs all parties who receive the order to take or refrain from taking specified action. In the case of the automatic stay issued by the bankruptcy court, the order directs all creditors of the bankruptcy petitioner to immediately cease all collection actions against the debtor or the debtor’s property. This order will prevent the party who is owed mortgage payments from proceeding with the foreclosure action until further order of the bankruptcy court.
How to use the automatic stay
Chapter 13 of the Bankruptcy Code allows the debtor to prepare a plan for restructuring all debt. The restructuring plan must include a schedule of payments and payment dates. In preparing this plan, the homeowner can buy significant extra time to negotiate a restructured payment plan with the mortgagee. The repayment plan must include payments that will be sufficient to remove the delinquency on the loan payment and also provide for future payments to eventually pay off the loan. The home owner then uses the extra time to negotiate with the mortgagee regarding reduced future loan payments and perhaps a reduction in the principal balance on the loan. The only catch is that the debtor must have a source of income that can be used to make the payments required by the plan.
Relying on the remedies of Chapter 13 and the automatic stay may not work for every homeowner. Anyone who may be interested in using Chapter 13 may wish to consult with an expert in foreclosures to determine whether the person’s existing financial situation warrants filing a bankruptcy petition and attempting to renegotiate the home loan with the current mortgagee.