Section 362 provides that the filing of a bankruptcy operates as a stay against all acts to acquire property of the debtor or to recover a claim against the debtor that arose prepetition. Therefore any foreclosure proceeding will stop immediately and if the bank were to continue foreclosure proceedings they would be violating federal law.
New Jersey is not a very friendly homestead state. Each state has a homestead exemption statute that sets forth how much equity the residents can keep in their homes in a bankruptcy or the collection efforts of creditors in general. In New Jersey, there are no statutes regarding a homestead exemption, except that a homestead interest is created by joint possession of real estate by a husband and wife which is used as their principal residence. New Jersey Code §3B-28-3. However, in New Jersey a $20,200 federal homestead exemption is available to New Jersey debtors. If a married couple is filing the husband and wife each get the $20,200 homestead exemption and therefore can protect a total of $40,400 worth of equity.
If your equity is greater than the exemptible amount Chapter 13 can still help.
Even if there is more than $20,200 of equity per person, then you can still keep you house if you file a Chapter 13 payment plan bankruptcy. With a Chapter 13, you can place the total sum of arrearages into a payment plan which can last up to 60 months. While you are in the plan and meeting that plans obligations the bank cannot proceed to foreclose on your home. For example let's say you have a $100,000 mortgage and your monthly payment is $1,000 per month. Lets also say that you have not paid your mortgage in 12 months thus you are in arrears of $12,000. In Chapter 13 you can place the $12,000 arrears in a plan and pay it over 60 months which would amount to 60 payments of $200. Thus this gives you time to catch up. However, keep in mind that you would also have to pay the normal $1,000 payment to the mortgage lender. So, in reality your total costs per month would be $1,200 for 60 months.
If you simply can't afford the home or it is underwater you can walk away from the home.
If you don't have the financial means to keep your home and you have little or no equity in the home, then you may want to file for Chapter 7 bankruptcy in which case you can walk away from your obligation without any financial recourse from the lender. When this is done the mortgage will still be able to foreclose on the home and take back the home, however with the banks' ever expanding portfolio of REO properties, foreclosure backlog and mediation tactics that can take an extended period of time during which you can continue to reside in the house without making any payments.
When the mortgage lender finally does take the property back, it cannot pursue you for any deficiency amount, because any such obligation will have been discharged in the bankruptcy.
If you have substantial equity in your home bankruptcy may not be your best remedy.
In the case that a debtor has substantial equity in the home, bankruptcy will most likely not be a good fit for that debtor. It would be more suitable for the debtor to try and sell the home with the interference of the bankruptcy court. There are rare occasions when a homeowner with substantial equity files for bankruptcy. Sometimes such is the case when a debtor wants the trustee to administer the sale of the property. The Chapter 7 trustee will seek to sell the home. However, the trustee must pay the debtor the amount of the homestead exemption from the proceeds, which would be $20,200 per person.
The New Jersey personal bankruptcy attorneys at Riviere Cresci & Singer LLC can answer any questions you may have concerning your home, mortgage and bankruptcy. If you live in New Jersey, including Upper Freehold Township, Ocean Township, Lanoka Harbor and Ocean Gate call us for a free consultation to find out how we can help you.