Should You File For Bankruptcy Before or After a Foreclosure in Pennsylvania?

The timing of when a bankruptcy case might be the best option can vary depending on your circumstances, as well as intentions with your home. For those looking to stop the foreclosure process altogether and get their mortgage payments back on track, a Chapter 13 Bankruptcy is usually the method to do so, and the most important factor that can drive the decision of when to file this case is whether or not you are ready to start making mortgage payments again. For those looking to just maximize their time in their home while ultimately surrendering it to the mortgage company, the answer is quite different.

Keeping your home

Once a bankruptcy case is filed, you usually need to be ready to start making your regular monthly mortgage payments directly to your mortgage lender the following month, as well as a payment to the Chapter 13 Bankruptcy trustee. These two payments will have to be made each and every month over the course of your Chapter 13 Payment plan in order to bring your mortgage account fully current and to stay off any future risk of foreclosure or a sheriff’s sale of your home.

Aside from the ultimate goal of bringing your mortgage payments current, saving the most money possible while in this process is also worth considering, and this is where timing can make a big difference. For example, when a homeowner in Pennsylvania falls behind on their mortgage payments, a legal proceeding begins long before the courts are actually involved. Specifically, once a homeowner is at least three months behind, the mortgage lender can now send them an Act 91 notice, which is the mortgage company’s way of telling the homeowner that a foreclosure action is about to begin. This notice also allows the mortgage company to begin charging the homeowner for any legal fees and costs related to the foreclosure process, all of which are debts that have to be paid back once a homeowner begins their Chapter 13 bankruptcy payment plan. This can result in a higher monthly bankruptcy payment than anticipated. Aside from the added legal fees and costs, each month that passes is another monthly mortgage payment that will have to be paid back in a Chapter 13 payment plan. So the longer you wait, the higher your bankruptcy payment will be, on top of your regular monthly mortgage payments.

Therefore, taking these two factors into consideration, a homeowner looking to save their home from foreclosure should do so as early as they are financially able to start making their monthly mortgage payments again. The earlier they file a Chapter 13bankruptcy case, the lower any legal fees and costs associated with foreclosure will be. If a homeowner files before the Act 91 notice is sent out, then usually, no fees at all can be passed on to the owner as a debt to pay back in the bankruptcy case.

Selling your home might also be your plan, but the same factors should be considered. Your mortgage might be getting paid in a lump sum at the settlement date if you are selling, but the fees all add up the same. Bankruptcy might help limit the amount of fees that could accrue during the process, as well as give you a more flexible schedule to list and sell your property under your own terms.

Whether you are keeping your home or getting it ready to sell, this question really comes down to this: Do you want to minimize the fees and costs that will be owed on the mortgage?  If so, the sooner you file your case, the smaller the overall bill.

Surrendering your home

If you have decided that keeping the home is not a feasible option, then the timing of when you file your bankruptcy case is less important, but it still can make a world of difference in how much you get out of your case. You can surrender your home in either a Chapter 13 or a Chapter 7 case. Which chapter you need to file will usually depend on other circumstances, such as your income, expenses, and other assets.

In either case, a goal that many people have in this situation is to maximize their time in their home to make other living arrangements or work on a loan modification of their mortgage. In these situations, the answer of when to file is usually the later, the better. And by later, I mean as late as possible, usually the week of, or even the day before, your home is scheduled to be sold at a sheriff sale. By filling just prior to the sheriff sale, a homeowner can usually prevent the sale from occurring for another two to four months, which can mean another four to six months living in the property to sort out new arrangements.

Sometimes, filing bankruptcy at this point is also the only option to buy more time to explore other options, including to pursue a loan modification. While all the legal fees and costs associated with foreclosure will be rolled into a modified loan, the new contract usually acts as a “reset” of the loan to bring you current and to set up affordable payments on the loan going forward. So even though you may ultimately pay more, this is often the best option to spread out costs and keep monthly expenses as low as possible. If a modification cannot be successfully completed for any reason, you can then advise the mortgage company and bankruptcy court that you may need to surrender your home.

Call Our Experienced Lawyers to Help Guide You Through Bankruptcy and Foreclosure

If you are possibly facing foreclosure, the best resource you can have is a local bankruptcy and foreclosure defense attorney to help determine the timing and options of bankruptcy. The sooner you get a consultation for your situation, the sooner a plan can be made to stop the foreclosure process before it even starts. Contact our Philadelphia bankruptcy attorneys today for a free consultation.