Bankruptcy isn’t a word anyone likes to consider. Still, financial difficulties can strike anyone at any time, and when you can’t make your mortgage payments, you may be looking for a way to stave off foreclosure. Emergency bankruptcy may seem like the way to go to either stop or delay the bank.
Before you take this step, however, it’s important to understand what emergency bankruptcy is, what kinds of bankruptcy you can file, their differences. Learn whether you can file an emergency bankruptcy petition to stop foreclosure, how to go about filing the papers, and when you should call on a bankruptcy attorney for help.
Understanding the Emergency Bankruptcy Petition
Emergency bankruptcy refers to getting bankruptcy protection without going through the full process of completing all the required forms. You might not have the time to put a full bankruptcy filing into play, but if you file just a few forms and take a credit counseling course, you can buy an extra 14 days for yourself to file the full bankruptcy paperwork with the courts.
The emergency petition can stop your foreclosure. If you’ve gotten a foreclosure notice from the bank, read it over very carefully so you can determine the process and date of your foreclosure sale. For the most part, the state has to give you plenty of time and provide a statutory period before they can set a date for a foreclosure sale. The exact amount of time can vary from state to state, but your notice should identify it.
As soon as you file the emergency bankruptcy petition, your lender can not move forward with the sale as an automatic stay takes effect. Bankruptcy can continue to delay or stop foreclosure. However, when the lender sells the property, you don’t own it anymore, and you can’t use bankruptcy to get it back.
Know the Difference Between Chapter 7 and Chapter 13
The two major forms of bankruptcy are Chapter 7 and Chapter 13 bankruptcy. Both will stop a foreclosure, but they are used for different reasons and in different circumstances. Understanding each will help you make the right decision if you do have to file for bankruptcy protection. Here are some differences between the two to keep in mind:
- Chapter 7 bankruptcy is liquidation, whereas Chapter 13 is a reorganization.
- For Chapter 7, you have to have a low disposable income, whereas Chapter 13 requires a maximum level of unsecured or secured debt.
- Chapter 7 usually takes three to four months to discharge, whereas completed payments close Chapter 13, which generally takes three to five years.
- In Chapter 7 bankruptcy, selling non-exempt property to pay off debts is an option; in Chapter 13, debtors can keep their property but have to pay unsecured creditors based on the value of any non-exempt assets.
- Chapter 7 does not allow for lien stripping, whereas Chapter 13 does allow for lien stripping.
- Chapter 7 can reduce a loan principal on secured debts related to personal property only, whereas Chapter 13 reduces all loan balances if other requirements are satisfied.
In short, with Chapter 7 bankruptcy, you can get a quick fresh start and get rid of any qualifying debts, but the trustee (your lender) can sell any property that is not exempt under the terms of the bankruptcy. It also doesn’t allow for catching up on missed payments or avoiding foreclosure in the long term. You can use Chapter 7 to hold off foreclosure while you file. With this type of bankruptcy, you are essentially selling off all your assets to pay your debts. You can exempt a certain amount of home equity, protecting a portion of your house, called a homestead exemption.
With Chapter 13 bankruptcy, on the other hand, you get to keep all your property, and you work out a plan to catch up on your back payments, be they mortgage payments, car payments, or other debts. You have to make payments every month for the term of your agreement, and you may have to pay back some of your unsecured debts. While the bank can’t take your home with Chapter 13, you don’t get to erase the debt. You have to pay all your bankruptcy fees, priority debts like child support, tax debts, and employee wages, secured debts like your home and car, and other unsecured debt.
Which one you choose depends on what your end goal is. If you need to buy time before selling your house, Chapter 7 can be a good option to give you a fresh start. If you’re trying to stop foreclosure altogether and save your home, Chapter 13 is a better option. The process for handling either can be complex with many qualifications and having a bankruptcy attorney in your corner can help you avoid critical errors when making decisions and filing.
Understanding Qualifications for Emergency Filing
For a Chapter 7 emergency filing, you will need to pass a means test that will determine whether you make too much money to file for bankruptcy or whether you have the means to pay your debts. If you pass the means test, you can file for bankruptcy.
The test will compare your income to the median income across the nation, based on your gross income rather than your net, and review your income sources over the relevant period. It will then account for your various expenses and determine if bankruptcy is a valid option for you.
Even if you plan to file Chapter 13, it could be a good idea to take the means test so you know exactly where you sit. The test can help you to make the right choice.
Be Aware of Exceptions to the Automatic Stay
While Chapter 7 or Chapter 13 bankruptcy triggers an automatic stay, two important exceptions exist that can cause you problems. Both relate to previous filings. If you have had a prior bankruptcy case dismissed over the last year, the automatic stay can last only for 30 days. If you have had more than one such case dismissed within the previous year, you get no automatic stay at all. These exceptions exist to stop people from repeatedly filing for bankruptcy to avoid paying debts.
In addition, the lender can file a motion to lift the stay unless you can show one of the following to be true:
- Foreclosure is illegal.
- The lender hasn’t fulfilled procedural requirements from the state.
- The lender hasn’t proven their authority.
- You have substantial equity that’s not possible to protect using an exception.
How To File for Emergency Bankruptcy
Filing an emergency bankruptcy petition requires only a few forms and buys you 14 additional days to complete the full bankruptcy filing. The documents you will need to file to get started include:
- Form 101 – Voluntary Petition for Individuals Filing for Bankruptcy
- Form 121 – Statement about Social Security Numbers
In addition, you will need to provide the names and contact information for all creditors and a credit counseling certificate or a waiver request for the course. In most cases, you will have to receive credit counseling within six months, with only a few exceptions that your attorney can explain. You will also need to pay the court fees or request a waiver or payment arrangement for fees. In some cases, your local bankruptcy courts may require additional forms.
Filing a full bankruptcy petition can require over 50 pages of forms and documents itemizing and listing all of your assets, debts, expenses, income, and financial history statements. Completing this process can naturally take quite some time to pull together, which is why many people file for emergency protection while they work to get the entire paperwork in order.
Know What You Need To Do
The process for filing an emergency bankruptcy has a lot of requirements and essential timeframes to hit. It is crucial to clearly understand the terminology, the process, and what you can expect. Give yourself time to complete the paperwork for a full bankruptcy by understanding how to file an emergency bankruptcy. Follow the guidance above to get started.