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Don’t “Tip Your Hand” to Your Mortgage Company
Filing a Chapter 13 bankruptcy will cancel any scheduled foreclosure auction. Once you file bankruptcy, the automatic stay takes effect and your mortgage company must immediately halt all foreclosure activity. But if you’re planning to file bankruptcy to stop a foreclosure, don’t “tip your hand” to your mortgage company.
Do it, don’t just say it
Your mortgage company will accelerate efforts to complete the foreclosure if they feel you may file bankruptcy. In some limited cases, you may be able to convince your mortgage company to voluntarily cancel an auction. But those cases are not common. The only legal way to assure that the foreclosure will not take place is to file bankruptcy.
Don’t tell your mortgage company you’re filing bankruptcy. Do it.
Completing a bankruptcy filing takes time. And you probably want to fix the underlying problem with the mortgage, not just cancel the sale. Chapter 13 bankruptcy allows you to repay your mortgage delinquency over as much as five years. Use bankruptcy not just to stop the sale but to get your mortgage (and other debts) back on track.
The bankruptcy threat
Just like in debt settlement negotiations, your attorney may use the threat of bankruptcy to negotiate with your mortgage company. The bankruptcy threat may induce your mortgagor to consider alternatives to foreclosure. But the threat is only credible when it comes from your bankruptcy attorney. And if you’re planning on filing bankruptcy anyway, there’s usually no reason to tell the mortgage company beforehand.
Keep your mortgage company happy
Mortgage companies want one of two things from their customers: either pay the mortgage or give up the house. At the same time, the foreclosure process is expensive, so that’s really their last resort. Mortgage companies step up efforts to complete a sale if they feel the homeowner may be taking steps to cancel an auction. If you receive notice of foreclosure, you should discuss your options with experienced bankruptcy counsel. But don’t tip your hand to your mortgage company before you have a clear plan.
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