When Is It Too Late to Stop Foreclosure? Here’s What You Should Know If You Are Behind On Your Mortgage

When Is It Too Late to Stop Foreclosure?

When is it too late to stop foreclosure and is bankruptcy your best option if you’re behind on your mortgage payments? Here’s what you need to know:

Timing is important when it comes to filing for bankruptcy. Waiting to file stretches your financial burdens longer than they need to be, but filing too soon can mean you miss out on some bankruptcy benefits. This is especially true when it comes to mortgage debt and avoiding foreclosure.

Knowing whether you should file when you’re at risk of foreclosure but not quite there or waiting until foreclosure proceedings begin can have a huge impact on your bankruptcy case. A bankruptcy lawyer can explain how to stop foreclosure at the last minute, but it’s always best to reach out to someone in the know sooner rather than waiting. Even if you don’t begin the filing process, at least you’ll know where you stand.

Another thing to consider when deciding when to file for bankruptcy as far as foreclosure is concerned is determining what your goal is for the bankruptcy. Do you want to stay in your home? Would you rather get a clean slate in terms of debt? Do you have other assets to protect?

All of these questions are things you and your bankruptcy attorney will discuss before you determine how to proceed.

Dealing with a Deficiency Judgment

Deficiency is the difference between the sale price of your home at auction and the amount you owe on the mortgage. For example, if your home is sold at a foreclosure auction for $100,000, but you still owe $150,000 to your mortgage lender, the deficiency is $50,000. Some states place limits on deficiencies, but in general, you’re dealing what any money you still owe out-of-pocket that you don’t get in the sale.

Mortgage lenders can sue you for the deficiency and Florida makes it relatively easy to do so. Granted, there’s still a legal process and they need to receive a judgment in their favor before they can force you to pay, but chances are they’ll be successful and you’ll be on the hook for the difference. You’re now looking at tens of thousands of dollars in debt that you owe and you no longer have your home.

You can learn more about deficiency judgments in Florida here.

The good news is that bankruptcy discharges your deficiency debt. Since there is no property to back it up, deficiency debts are unsecured. This means they are part of a Chapter 7 bankruptcy discharge. Once bankruptcy is complete, the lender can no longer legally attempt to collect the debt.

Filing for Bankruptcy before Foreclosure

But what if you file for bankruptcy before foreclosure? This is the option most people use because it eliminates a lot of the hassle of dealing with a deficiency lawsuit.

There are also tax ramifications based on when you file. If you file before foreclosure and your lender cancels the deficiency, it might need to be reported on your tax return as income. In the example above, you’d be forced to pay tax on $50,000. That’s a significant tax burden no matter your situation. This varies from situation to situation and there are exceptions, but it’s important to understand your risks. The last thing you want is to resolve your current financial situation only to end up with a huge tax burden you can’t afford.

Whether or not you should file for bankruptcy before foreclosure proceedings begin depends on several factors, including how much you owe on your mortgage and the value of your home. Your attorney will help you decide whether a deficiency judgment should affect when you file and help you figure out your next best step.

When Is It Too Late to Stop Foreclosure?

You’ll need to speak to a lawyer to determine whether or not it’s too late to stop foreclosure in your case. And even if it is too late, there are still several issues you must address as you move forward.

If you are facing foreclosure or you have questions about bankruptcy timing, we can help. To schedule a free consultation, contact the Law Office of Robert M. Geller at 813-254-5696.