Over the past few months, I have noticed a definite trend in the Atlanta bankruptcy environment. Banks are continuing to initiate foreclosure proceedings against homeowners, but more and more north Georgia residents are opting for Chapter 7 rather than Chapter 13.
Traditionally, Chapter 13 has been the choice of a mortgage borrower facing foreclosure because Chapter 13 payment plans allow the homeowner to save his home by paying back his missed payments over a five year period. However, in situations where homes are worth tens of thousands of dollars less than the mortgage balances, it may not make sense to save one’s home.
When I meet with a potential client who is facing foreclosure, I always say something like this: “if you are meeting with me (a bankruptcy lawyer) everything needs to be on the table. No house, car or other possession is worth more than your peace of mind or the health of you and your family. If it does not make economic sense to keep this house, let it go, rent for a while then in a few years, find another house to buy.”
More and more of my clients and, apparently, many others are following this strategy. Chapter 7 will stop a foreclosure because it creates an automatic stay just like Chapter 13. Chapter 7 does not contain a mechanism to cure an arrearage, but it will give you time – usually four to six weeks – to find another place and to move. Chapter 7 will also eliminate other lingering debt such as unpaid credit card bills, medical debt and other personal loans. Therefore, you can enter Chapter 7 with a looming foreclosure and thousands of dollars of unpaid debt, and walk out four or five months later completely debt free.
Sometimes, bankruptcy is not even necessary to address a pending foreclosure when my client wants to surrender his house. Georgia is a non-judicial foreclosure State, meaning that no court proceedings are necessary for a lender to take back your home in the event of a delinquency or voluntary surrender. Because there is no court proceeding, there is also no deficiency judgment unless the lender takes the somewhat unusual step of filing a separate lawsuit within 30 days of the foreclosure to certify a deficiency before a Superior Court judge. In my experience these deficiency judgment certifications rarely occur.
Therefore, if you have no other significant debt aside from your delinquent mortgage, you may not need to take any bankruptcy action at all – simply turn in the keys and walk away. Your credit score will take a hit but your credit would be damaged by bankruptcy as well.
Obviously every case will be different but the point here is that homeowners facing foreclosure may have more options than they realize. Please feel free to call my office at 770-393-4985 for more information about your foreclosure and post-foreclosure options.