Bankruptcy help in Seattle, WA

Losing Your Home in Bankruptcy vs. Foreclosure

Get the bankruptcy help you need today and learn your options! Do you know the difference between losing your home in bankruptcy (which happens when the bankruptcy trustee sells your home to pay unsecured creditors) and losing your home outside of bankruptcy (the foreclosure process)?

Although commonly associated together, bankruptcy and foreclosure are two very different types of legal proceedings, with different objectives and results.

The purpose of bankruptcy is to allow an individual the ability to obtain a release of or payment plan for their debts. On the other hand, foreclosures allow a mortgage lender capacity to claim ownership of real estate to assist in repaying the balance owed on a past-due mortgage loan.

If you are behind on your mortgage payments, you will ultimately lose your home in foreclosure outside of the bankruptcy process, even though the bankruptcy trustee may not sell your home as part of the bankruptcy process.

Read on to find out more about which of these options would be best suited for you.

Bankruptcy options

Choosing The Right Bankruptcy

It is important that you fully understand all the potential liabilities you may face before filing for bankruptcy. This is a key factor in considering any of your options. 

Real estate is treated very differently if it is part of Chapter 13 versus Chapter 7 bankruptcy proceedings. Homes in chapter 13 bankruptcy remain in the control of the seller. To purchase one, you would negotiate with the owner directly. 

Chapter 7 bankruptcies are very different. All of the owner’s assets shift to the possession of a bankruptcy trustee, who is appointed by the court. The trustee is responsible for the sale and disposition of all property, and the owner is no longer involved in the negotiations for the sale of their home. 

Chapter 7 Bankruptcy

Filing for a Chapter 7 bankruptcy is an option if your goal is to sell your home and pay as much as you can to the mortgage holder and any additional creditors that you owe. A Chapter 7 filing protects you from creditors. However, you might end up losing control over the sale of your home, and may be required relinquish all your assets. The court can dictate the price, terms, and potential buyer. Besides these, the court will appoint a Bankruptcy Trustee as a mediator between you and the creditors. The trustee's goal is to collect any funds available to be able to pay the lenders.

If you're in need a Bankruptcy Attorney and/or real estate agent in Washington, please contact us and we will reach out with the best option for your needs.

Chapter 13 Bankruptcy

A Chapter 13 Bankruptcy can help you stay in your home, and its structure is such that you can work out a payment agreement with your lender. This option also protects you from any creditors that you owe. The primary requirement is that you to earn enough money to pay your monthly expenses. This option requires that your creditors be paid some of the outstanding amount owed. The disadvantages of Chapter 13 are that you cannot incur additional debts without the court’s approval. You will have limited control over the payments that you want to make to creditors, and the court can garnish your wages. 

Selling a house before filing for bankruptcy

The last option is to sell the asset before your bankruptcy case is filed and use the money to pay off creditors. The most important factor of this option is to sell the home for a reasonably equivalent value than what you owe. This is why timing and strategy are crucial. In this option, you can choose to work with a realtor or home investor.

Beware Of Scams!

Solutions that sound too simple or too good to be true usually are! Unfortunately, people may try to take advantage of your hardship and financial situation. If you're selling your home without professional guidance, beware of people who try to rush or misguide you through the process. 

Be especially alert to:

Equity Skimming: A buyer approaches a homeowner offering to get them out of financial trouble by promising to pay off their mortgage or to give them a sum of money when the property is sold. The buyer may suggest that the homeowner move out quickly and deed the property to him or her. The buyer then collects rent for a time, does not make any mortgage payments, and allows the lender to foreclose.

Signing over your deed to someone else does not relieve you of your obligation to your lender.

Phony Counseling Agencies: Some organizations known as "counseling agencies" may approach you and offer to perform certain services for a fee. No one can guarantee that he or she can negotiate a payment plan with your lender. Check with your bank to verify if the counseling agency is licensed, They should not charge for their services.

Inexperienced Real Estate Agents: The majority of real estate agents have no experience negotiating the complex terms of home bankruptcies and foreclosures with banks, which can cost you both time and money. If you decide to sell your home, be sure to work with a real estate agent who is knowledgeable and experienced in dealing with short sales and foreclosures. A Realtor is held to a higher level of legal accountability and ethical laws than a Real Estate Agent.

General Precautions:

  1. Don't sign documents you don't fully understand.

  2. Get all "promises" in writing.

  3. Beware of any contract of sale or loan assumption where you are not formally released from the liability for your mortgage debt.

  4. Check with a lawyer or your licensed Realtor before entering into any deal involving your home.

  5. If you are selling the house yourself to avoid foreclosure, check to see if there are any complaints against the prospective buyer.

If you are facing bankruptcy and need help, Kirk Russell and his team of top bankruptcy attorneys have been helping families solve their financial burdens through bankruptcy since 2001 in Seattle, Washington.