Bankruptcy and Home Foreclosure
July 1, 2014
A fairly common question people have for Michigan bankruptcy attorneys is about what happens when a home gets put into foreclosure or has been foreclosed. Let’s take a look:
When a car has been repossessed, the person or people who signed the financing agreement is/are liable for any deficiency balance once it is sold. A home in foreclosure follows the same logic. The problem, of course, has been the real estate meltdown that has led to so many homes to go back to the bank, without being sold at a public action or sheriff’s sale.
It is no secret that many people have gone years after foreclosure without being sued. That fact, however, has led to a misconception that a person who loses a home in foreclosure is somehow not liable for it. Nothing could be farther from the truth!
The Foreclosure Bubble Will Pop
Legally speaking, a person can be sued for at least six years after the time they are considered to have “breached” the financing contract. Homeowners will say the “breach” occurred the first time they missed a payment, but the bank will say that six year timeline begins as soon as the redemption period has ended, after the home has been sold.
At the Law Office of Jeffrey J. Randa, we believe as the economy and real estate market recover, and homes start selling again, there will be a rash of lawsuits over foreclosed homes. Even if the banks write off this debt, it can and will be sold to speculators who have bought it for pennies on the dollar, and stand to make a windfall on anything they can recover.
Bankruptcy Erases Liability
Bankruptcy provides a person with a way to permanently put any of these concerns out of their mind.
The beauty of bankruptcy is that a person can completely erase any liability for a foreclosed home at any stage of the foreclosure process, or thereafter. This means a person can bail out of a home they can no longer can afford, or otherwise just no longer want, even before they have missed a single payment.
Of course, they can likewise get out of the whole situation once they have missed any number of payments, from the very first, to the 6th, the 12th, or even the 24th.
In addition, once the home has been foreclosed, and whether or not an auction has taken place, a person can make a graceful exit from the situation by filing for bankruptcy.
If there has been an auction, and even if a person has a judgment against them, bankruptcy completely wipes away any liability they might have.
You can be eligible for bankruptcy whether you have credit card debt or not. If you have mortgage that you cannot keep up with, a foreclosure that you want to avoid, or foreclosure debt you want to dump, bankruptcy provides a way out.
Lots of people file bankruptcy on nothing more than a mortgage for a home they have given up, or has been taken in foreclosure. In many of these cases, no lawsuit has yet been filed. The person just wants the peace of mind that comes with knowing that debt is erased. Bankruptcy does that. Talking with a Detroit bankruptcy attorney can help you decide whether bankruptcy is a viable option for you.
Often, people are concerned about their credit rating as they consider bankruptcy. In almost all such cases, that concern is misplaced, as the sheer amount of debt, or potential liability from the mortgage or mortgages, as it appears on their credit report, will be enough to prevent them from getting any new credit.
To give a specific time period within which a person can recover after a foreclosure and bankruptcy ignores the numerous variables involved in home financing. Still, once a person has filed bankruptcy on a mortgage that was either in, or had gone through foreclosure, there are no remaining questions of liability on that old loan. It is gone forever.
Bankruptcy is an option that is relatively quick, incredibly clean and perfectly clear. The debt is gone.
If you would like to discuss your personal financial situations with an experienced Macomb County bankruptcy attorney, call the Law Office of Jeffrey J. Randa. Our consultations are done over the phone, and are absolutely free.