For some, bankruptcy may be the solution
As South Carolina emerges from the COVID-19 pandemic, another crisis looms on the horizon: millions of people may be at risk of losing their homes.
A recent analysis by QuoteWizard, based on U.S. Census data, found that nearly 30% of South Carolinians are worried about the prospect of eviction or foreclosure in the next few months, plus another 7% who are not yet facing foreclosure but have fallen behind on their mortgage payments. A lot of hardworking people have been out of work for many months through no fault of their own, and with expanded unemployment benefits and eviction moratoriums coming to a close, some families are stretched to the breaking point.
These are exactly the type of situations bankruptcy is meant to address.
How bankruptcy prevents foreclosure
When a homeowner who is behind on mortgage payments files for Chapter 7 or Chapter 13 bankruptcy, the bankruptcy court will immediately issue an order for relief. The court order includes an "automatic stay" that blocks any collection actions, including foreclosure proceedings.
If the home has already been scheduled for a foreclosure sale, the automatic stay will legally delay that sale until the bankruptcy is resolved, usually three to four months. The lender can file a motion to lift the automatic stay and schedule the foreclosure sale sooner, but even then, you will almost certainly buy at least two months while that motion is resolved, possibly longer. Your bankruptcy attorney can analyze the legal situation around your foreclosure and find a path to buy you as much time as possible.
In most cases, we are able to prevent our clients from losing their homes, even after foreclosure proceedings have been initiated. We can advise as to whether Chapter 7 or Chapter 13 makes more sense in your financial situation and work through the process to help you keep as many assets as possible.
How bankruptcy prevents eviction
If you are facing eviction for non-payment of rent, your landlord is effectively a creditor, so the protection of bankruptcy applies. Again, when you file bankruptcy, the bankruptcy court will issue an automatic stay that blocks any collection actions. In particular, this prevents your landlord from starting or continuing the eviction process while the bankruptcy is pending, as well as blocking collection action to get you to pay your past-due rent.
Note that if you are being evicted for non-monetary reasons, such as illegal drug use or unauthorized pets, and the landlord can prove it to the bankruptcy court's satisfaction, then bankruptcy will not stop the eviction, although it will still slow it down.
The key is to act as quickly as possible — before the landlord has obtained an eviction judgment (judgment of possession). Once the landlord has the judgment in hand, bankruptcy cannot stop you from being evicted.
Ultimately, the way bankruptcy interacts with past-due rent depends on the type of bankruptcy you file. In Chapter 13 bankruptcy, your back rent will be one of the debts rolled into a repayment plan with affordable monthly payments. This means it's at least possible to patch things over with your landlord and stay in your current home — though of course, that also depends on your landlord.
In Chapter 7 bankruptcy, your past-due rent can be discharged (wiped out) like any other debt. This almost certainly means you'll need to find a new place to live, but it buys you time to find that new place and allows you to go into your next home better equipped to pay for housing.
If you're facing foreclosure or eviction, talk to a bankruptcy lawyer today
The purpose of bankruptcy is to give you a financial reset, and the prospect of losing your home is certainly a good reason to look for such a reset. In addition to stopping foreclosure or eviction, filing bankruptcy can indirectly help your housing situation by taking care of other debts, such as credit card debt or medical debt, leaving you with more money available to pay for housing. The goal is to prevent you from ending up on the street and give you the tools you need to rebuild your life.
Ideally, you want to call a bankruptcy attorney right away, before foreclosure or eviction proceedings are initiated. However, wherever you are in the process, we may be able to help. If you're facing the prospect of losing your home, contact Benjamin R. Matthews & Associates, LLC today for a free and confidential consultation. We can listen to your story, explain your options, and take immediate action to help you stay in your home.