Are you struggling with unmanageable debt and contemplating bankruptcy or foreclosure? If so, you probably have some questions about the bankruptcy and foreclosure processes in the state of Michigan. Fortunately, the Reinert & Reinert Law Firm is here to provide you with informative and helpful legal guidance.
Michigan homeowners may be experiencing financial difficulties related to the current health & economic crisis. Many mid-Michigan residents who are paying mortgages are facing challenges such as job loss, uncertainty about the future, and reduced or loss of income.
A common question asked is: Can bankruptcy save my home?
The answer isn’t a simple “yes” or “no.”
Does Bankruptcy Stop Foreclosure?
When a homeowner files for bankruptcy in the state of Michigan, the court places an “automatic stay” (or pause) on any foreclosure proceedings. The stay occurs because federal law prevents almost all forms of collection activity during the bankruptcy process.
However, this pause is temporary. It does not permanently cancel the foreclosure proceedings.
When courts order lenders to cease foreclosure activities, they typically postpone the auction by a few months. During this time, the owner can usually continue to live in the home. Lenders that do not wish to postpone the sale of the home may file a motion to lift the automatic stay. However, very few creditors pursue this option. Most prefer to wait out the pause.
If your lender is about to foreclose on your Michigan home, please reach out to Reinert & Reinert today. Joshua Reinert is an experienced bankruptcy attorney who has helped Michigan residents and small businesses become debt-free since 2003.
Which Type of Bankruptcy Will Allow Me to Keep My House?
Chapter 7 Bankruptcy
This option is called liquidation bankruptcy. It involves selling off some or all of an individual's nonexempt property to pay their debts. Chapter 7 is an opportunity to eliminate personal liability for the home loan and any potential deficiency owed to the mortgage lender after a foreclosure when a homeowner surrenders their home. People who declare bankruptcy under this chapter of the US Bankruptcy Code often lose their homes.
Chapter 13 Bankruptcy
This option is known as reorganization bankruptcy. Individuals who file for Chapter 13 bankruptcy can keep secured assets like their home and vehicle if they successfully complete a court-mandated repayment plan.
For Michiganders who want to keep their home, it is generally best to declare bankruptcy under Chapter 13 of the US Bankruptcy Code. To do so, however, they must:
- Have filed state and federal income tax returns for each of the four years before the bankruptcy filing date
- Have sufficient disposable income, and
- Have less than $419,275 of unsecured debt or $1,257,850 of secured debt
If you are not sure whether you qualify to file for Chapter 13 bankruptcy, please reach out to Joshua Reinert who is an experienced bankruptcy attorney, as soon as possible. Reinert & Reinert Law will review your case and provide you with the information you need to make the most well-informed decision about your situation.
Should I File For Bankruptcy Before or After Foreclosure?
Whether a homeowner should file for bankruptcy before or after foreclosure largely depends on their goals and personal circumstances.
Filing for bankruptcy before foreclosure often offers the following advantages:
- More Time in the Home: Filing for bankruptcy before foreclosure triggers an automatic stay, giving the debtor extra time in their home.
- No Deficiency Judgements: If the selling price of the home will not cover the balance of the loan, declaring bankruptcy before foreclosure can prevent deficiency judgments.
- Tax Benefits: Filing for bankruptcy before foreclosure can allow debtors to avoid paying capital gains tax and other levies.
On the other hand, filing for bankruptcy after foreclosure may give debtors the ability to wipe out HOA dues and other accrued expenses.
For most Michiganders, the advantages of declaring bankruptcy before foreclosure outweigh the benefits of doing so after the process has concluded. Reinert & Reinert have been helping Michigan residents declare bankruptcy for decades and can help walk you through every step of the bankruptcy process.
What Is a Lien Strip?
Many Michigan homeowners have multiple liens on their property. When an individual declares Chapter 13 bankruptcy, they may eliminate some of these liens. This process is known as “lien stripping.”
Lien stripping does not give homeowners the ability to eliminate any charges they wish, though. Liens may only be eliminated according to their order of priority. The priority of a lien against other charges is generally based on when it was recorded. In most instances, the earliest lien takes priority over subsequent liens.
When a lien has been stripped, it becomes unsecured debt. Debts of this nature usually receive nothing or a small fraction of their balance at the conclusion of the bankruptcy process.
When discharge occurs, the lender must remove their lien from the property.
It is not possible for homeowners who file for bankruptcy under Chapter 7 of the US Bankruptcy Code to use lien stripping. A 2015 Supreme Court ruling restricted the procedure to Chapter 13.
What Is An “Automatic Stay” Bankruptcy Provision?
Immediately after an individual files for Chapter 7 or Chapter 13 bankruptcy, the court issues an injunction known as an “automatic stay.” This order prevents certain creditors from commencing or continuing debt collection activities against the debtor for a period of time.
Specifically, 11 U.S. Code § 362 states that an automatic stay bans creditors from:
- Enforcing a judgment obtained before the commencement of the bankruptcy case
- Exercising control over or obtaining possession of the debtor’s property
- Creating or enforcing any lien against the debtor’s property
- Collecting, assessing, or recovering a claim against the debtor that arose before the commencement of the bankruptcy case
Creditors who wish to engage in these activities must file a motion to lift the automatic stay. Automatic stays apply to both businesses and individuals. They do not apply to non-debtor entities such as guarantors, corporate officers, and corporate affiliates.
How Long Do I Have to Wait After Bankruptcy To Buy a New House?
The length of time an individual must wait after bankruptcy to purchase a new house depends on the type of bankruptcy they declared and how they wish to buy their new property.
People who wish to purchase a new home using an FHA or VA loan after filing for bankruptcy under Chapter 7 of the US Bankruptcy Code must generally wait two years. Individuals who want to obtain a USDA loan to buy a new home must usually wait three years after filing for Chapter 7 bankruptcy. People who filed for Chapter 13 bankruptcy can generally get an FHA, VA, or USDA loan after one year.
Conventional loans typically have longer waiting periods. It is not unusual for lenders to force prospective borrowers to wait more than four years after bankruptcy to get one of these loans. However, Individuals who wish to buy a new home in cash can generally do so at any time.
Contact An Experienced Michigan Bankruptcy Attorney Who Cares
For Michigan residents who are struggling with debt, don’t lose hope; there is a path to becoming debt-free. Financial hardships can happen to anyone, and Reinert & Reinert is here to help. Michigan residents searching for a bankruptcy attorney to assist them through this challenging process should contact us today to help you begin the process to a more financially secure tomorrow. We’ve been helping Michigan residents through tough financial situations for years, and we are ready to do the same for you.
Contact us today to set up a free consultation in person, over the phone, or via Zoom, and join the 13,000 clients that Reinert & Reinert has helped achieve a debt-free life.