Can You File for Bankruptcy to Avoid Defaulting on Your Mortgage in Pennsylvania?

The thought of losing your home in a sheriff’s sale is frightening. Unfortunately, thousands of families in Pennsylvania face foreclosure every day. However, before a lender forecloses on a property, the homeowner must have defaulted. Filing for bankruptcy is one option to save a home. There are benefits to filing for bankruptcy before your mortgage lender takes any action.

Timing is a critical element in many bankruptcies. When you file could save you a considerable amount of money in the long run. Waiting until the day before your home is scheduled for auction is possible but rarely advisable. In many situations, it is better to file for bankruptcy as soon as you are aware you are falling behind.

Our experienced Philadelphia bankruptcy attorneys at Young, Marr & Associates are available to help you understand the advantages of filing for bankruptcy to stop a mortgage default. If you are in danger of losing your house, call our law offices at (215) 701-6519.

What is a Mortgage Default in Pennsylvania?

Most people understand that a default occurs when they fail to make their mortgage payments. However, whenever you fail to comply with the terms of your mortgage or promissory note, you are considered in default. While falling behind in your monthly payments is the most common type of default, you could breach other terms of the contract. For instance, if you do not have an escrow account and fail to pay your property taxes, you have defaulted on your mortgage. Other types of breaches occur, including not carrying homeowners’ insurance, allowing the property to deteriorate, or transferring the property without permission from your lender.

As soon as a breach occurs, you are in default. Once your mortgage lender is aware of the default, it can accelerate your debt. This means that you could be required to pay the balance of your loan immediately. If you fail to repay the total amount, the lender has the right to foreclosure the property.

Under federal law, specifically the 2014 Dodd-Frank Act, lenders and mortgage servicers are required to wait 120 days before starting the foreclosure procedure. While there are some exceptions, this law applies to delinquent payments and non-monetary defaults, such as failing to pay real estate taxes or not maintaining homeowners’ insurance coverage. If you have any questions about the foreclosure process, contact our Pennsylvania bankruptcy attorneys.

Filing a Chapter 13 Bankruptcy When Facing a Mortgage Default

Because a mortgage lender or servicer is not permitted to begin foreclosing on a property for 120 days, many homeowners wait until the process has begun or until a sheriff sale has been scheduled before contacting a bankruptcy attorney. However, taking a proactive approach could save you frustration and money.

The foreclosure process costs money. Your mortgage lender will incur a significant amount of court costs and legal fees. In every mortgage contract, there is a provision that allows the lender to charge those fees back to you. These fees are added into what you owe whether you fell behind on your mortgage payments, failed to pay your real estate taxes, or are otherwise in default of your mortgage contract.

By filing a Chapter 13 bankruptcy, a homeowner can stop a foreclosure. To save your home, you will have to pay back any money you are behind through a monthly trustee payment. This required payment is in addition to your regular mortgage payment. Therefore, you will have two monthly payments: one to the Chapter 13 trustee and one to your mortgage lender.

The Advantage of Filing for Bankruptcy Early in Pennsylvania

The amount your trustee payment will depend on many factors, including your income, assets, and type of debt. For the sake of this article, it is assumed that the only debt that must be paid is the mortgage arrears.

To illustrate the advantage of filing early, imagine your mortgage payment is $2,500 and you are three months behind. At this point, your lender is not permitted to file foreclosure on your property. If you file for bankruptcy, you will have five years to pay back $7,500 at approximately $125 a month. In reality, that number will be slightly higher because there is a trustee fee based on the total amount of your bankruptcy plan and it is likely some of your attorneys’ fees are included.

Now imagine that you do not react and allow the property to go into foreclosure. If you wait until an auction date is set to file for bankruptcy, you will have to pay more. First, your lender must wait 120 days before foreclosing. Once that happens, it takes about four to five months to obtain a judgment and schedule a sale. Instead of being $7,500 behind, you are now $22,500, or nine months, behind. In addition to the mortgage arrears, there are attorney fees and court costs of $2,500, for a total of $25,000. Now, to save your home, your monthly trustee payment will increase to at least $417 a month. Filing early is often the difference in making a bankruptcy feasible.

Filing Chapter 7 Before a Mortgage Default in Pennsylvania

Sometimes people default on their mortgage because of other bills, including high credit card fees or outstanding medical expenses. When there is not enough money to pay all your bills, sometimes the most expensive bill is left unpaid. If you find yourself in a position where your income is not covering your expenses, filing a Chapter 7 bankruptcy could eliminate much of your unsecured debt and make it possible to pay your mortgage, avoiding a potential default. Not everyone qualifies for Chapter 7, so it is crucial to speak with one of our Bucks County bankruptcy attorneys to determine if it is a viable option.

Contact Our Pennsylvania Bankruptcy Attorneys if You Are Struggling to Pay Your Mortgage

If you are finding it difficult to pay your mortgage, contact our experienced Lancaster bankruptcy attorneys. Having a plan before you default could help you save your home in the long run. At Young, Marr & Associates, our attorneys believe in a proactive approach to handling debt and forecloses. Call (215) 701-6519 to take control of your debt.