For those grappling with debt and facing foreclosure in Athens, bankruptcy is an option that can help you regain control over your finances and improve your outlook. The two types of bankruptcy work differently, but both offer benefits. Your qualifying debt is either entirely discharged or paid down before discharge, so you eliminate the burden of debt weighing you down. However, the most valuable asset you own is likely your home. If one of the bills you are late on is your mortgage, you must consider how it plays into bankruptcy proceedings.

When you run a few months late on your mortgage, you know that the initial steps of the foreclosure in Athens process are probably not far behind. Lenders are aggressive in attempts to collect, and they are not likely to negotiate because of the secured interest they hold in the home. Bankruptcy offers a way to get back on track with your mortgage, and a key strategy in achieving this goal is your timing on filing.

There are many reasons it makes sense to file Chapter 7 or Chapter 13 before a lender initiates foreclosure in Athens. To fully understand them and whether you can leverage the laws to your advantage, you need assistance from an Athens, GA, bankruptcy lawyer. Some information on the advantages of filing for bankruptcy before foreclosure is also helpful.

Chapter 7 Bankruptcy Overview

Known as bankruptcy discharge, Chapter 7 is an option that enables you to eliminate unsecured debt like credit cards, medical bills, personal loans, and lines of credit. The process is advantageous for you but is a harsh remedy for creditors who could be out significant amounts after advancing credit to you. Therefore, the rules to qualify are strict to ensure that only those needing discharge will be eligible. There are two tests, based on your income, that determine whether you qualify:

1. Your earnings are less than the Georgia state median income level.
2. Your income exceeds this amount, but you pass the Means Test. This assessment also reviews your earnings but takes into account your monthly bills. Your salary could be higher and you are still eligible.

Your home is not an unsecured asset, however. You cannot discharge the mortgage in bankruptcy because it is a secured loan and the lender is essentially part owner with a security interest.

Basics of Chapter 13 Bankruptcy in Athens

You can also discharge unsecured debt at the conclusion of a Chapter 13 case, but the path to get there is different. Through the process, you use a debt repayment plan to pay back some of your debt to creditors. The monthly amount will be one you can afford, and it will likely result in you paying a fraction of what you owe. The debt repayment plan will be in effect for 3 to 5 years.

The eligibility rules for Chapter 13 are relaxed compared to Chapter 7, so most filers will qualify. The main criterion is that you have a job or other source of income. This is the basis for the amount you pay for your debt repayment plan.

How the Automatic Stay Works

A key issue with timing on bankruptcy and foreclosure is the automatic stay, and it is something to take into account when you consider your options. Upon filing your petition for Chapter 7 or Chapter 13, the bankruptcy court orders all creditors to cease any collection efforts against you. They cannot:

• Call or contact you with threats about payment;
• File a debt collection lawsuit;
• Garnish your wages, or,
• Lien bank accounts.

Another important prohibition is that a lender cannot initiate or continue foreclosure on your home after the automatic stay. However, the bank can petition the bankruptcy court to lift the automatic stay to resume the foreclosure process.

Steps in the Foreclosure Process

The trigger event for a foreclosure case is the first missed mortgage payment, though some lenders may allow more time. From there:

1. At the fourth month of missed payments, the bank will send a Notice of Default. You have 30 days to remedy the past due amounts.
2. Georgia is a non-judicial foreclosure state, so the lender can file the necessary paperwork followed by a Notice of Trustee’s Sale. This document details the sale, including time, location, and minimum bid.
3. At the Trustee’s Sale, the property is put up for public auction to the highest bidder, who becomes the owner upon payment of the purchase price.
4. If the home does not sell for an acceptable price at the public auction, the bank is the owner that can sell it. Again, the purchaser becomes the owner.
5. Once the real estate is sold and the title is transferred, you are not legally present in the house. The new owner can seek eviction.

Advantages of Timing in Chapter 7

The benefits for filing bankruptcy before foreclosure in Chapter 7 are related to the automatic stay. You may be unable to discharge the mortgage, and you could see the lender petitioning the court to lift it. However, you do buy time. You will not be paying bills for unsecured debt due to the automatic stay so you will have some flexibility with your finances. It is possible to leverage the automatic stay to pay the past due amounts before the court grants a lift on the automatic stay.

Another point to consider with Chapter 7 is that you can use exemptions to protect property, including your home. You can only safeguard the equity in your home, up to $21,500 for individuals and $43,000 for married couples. There are many additional exemptions available under Georgia law as well.

Benefits of Filing Chapter 13 Before Foreclosure in Athens

You also gain the advantage of the automatic stay in Chapter 13, stopping or pausing the foreclosure process. Still, it is the debt repayment plan that offers the most significant benefits. You cannot work your mortgage into your monthly payments, but you can roll the late fees, interest, and other arrearages into them.

This means you do not have any back due amounts once your Chapter 13 bankruptcy case concludes after 3 to 5 years. The lender cannot initiate or resume foreclosure when nothing is due. As long as you pay your mortgage throughout the process, you will have a clean slate with the lender. The bank received its arrearages and your monthly mortgage payments.

Second Mortgages and Bankruptcy

If you have a second mortgage, home equity line of credit (HELOC), or home equity loan, your situation is different. These are all junior loans compared to the senior priority loan representing your main mortgage. Their interests fall below the primary mortgage.

In Georgia Chapter 7 cases, you cannot engage in lien stripping, which would remove the security interest of junior lenders. You will not be able to discharge junior loans, so they remain a lien on your home. With Chapter 13, you can strip junior liens in certain situations. This process converts the secured interest into an unsecured one, which means the amount can be worked into your debt repayment plan. When the case is over, any balance due on the second mortgage will be discharged.

Other Benefits of Filing Bankruptcy in Athens

There are many other advantages to Chapter 7 and Chapter 13 that are separate from protecting your home. They include:

• The emotional burden and stress on your personal life is reduced when you know you are taking the right steps to improve your financial future.
• You must take two credit counseling sessions, one before and one during bankruptcy. The information you learn will help you understand credit and debt so that you do not fall into bad habits that put you back in financial trouble.
• You emerge debt-free after bankruptcy, and continuing to pay your mortgage after Chapter 7 and Chapter 13 positively affects your credit rating. A bankruptcy case remains on your credit report for 7 and 10 years for Chapter 13 and Chapter 7, respectively.
• You can also rebuild credit after bankruptcy through other strategies, such as secured credit cards and personal loans. Use what you learned in the credit counseling session to make smart decisions on payments and interest rates.

Get an Attorney’s Help in Athens

The advantages of filing for bankruptcy before foreclosure are significant, but you cannot leverage them without legal advice and assistance. The timing is critical, as well as whether you file Chapter 7 or Chapter 13. It is important to rely on your Athens, GA bankruptcy lawyer for such essential tasks as:

• Gathering and reviewing your financial documents, including all information on assets, debts, and income;
• Preparing the bankruptcy petition and attachments;
• Helping you develop a debt repayment plan for a Chapter 13 case, which you will start paying right away;
• Guiding you to get the maximum value out of exemptions in Chapter 7;
• Attending the meeting of creditors for both types of bankruptcy, in which you will answer questions about your case and confirm information from your petition; and,
• Managing all steps to close your case and obtain a bankruptcy discharge order.

Trust an Athens, GA Bankruptcy Attorney to Advise You on Options

You can see the advantages of filing for bankruptcy before foreclosure in Athens, but remember that you will need legal help to ensure you reap the benefits. Our team at Morgan & Morgan, Attorneys at Law, P.C., is well-versed in the laws regarding bankruptcy and foreclosure, so we can counsel you on making the right decision for your situation. Please get in touch with us today to schedule a no-cost consultation with an experienced Georgia bankruptcy lawyer.

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