Can I File Bankruptcy After Being Served for Foreclosure in Florida?

by Beverly Bird

There's no doubt that a homeowner's worst nightmare is receiving a foreclosure notice in the mail. It means you've tried but failed to catch up on delinquent mortgage payments and now you may lose your home. Bankruptcy can delay the loss, or avoid it completely, depending which type you choose.

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Automatic Stay

Whether you file for Chapter 7 or Chapter 13, federal law mandates an automatic stay that goes into effect as soon as you file your petition. The stay prevents your lender's foreclosure action from proceeding. No matter what stage of the foreclosure process you're in, your mortgage company must immediately put it on hold. The stay remains in effect until the court discharges your bankruptcy.

Effect of Chapter 7

Chapter 7 is a liquidation bankruptcy. Your trustee sells your assets and gives the money to your creditors. If your home's value is more than the mortgage balance you owe, the trustee can order its sale -- except in Florida. With a few exceptions regarding acreage, Florida bankruptcy law offers an unlimited homestead exemption. You can use this to protect the equity in your home, no matter how much it is. There's no available surplus to give to your creditors, so there's no point in the trustee selling it. However, this only protects you from losing your house as part of the bankruptcy proceedings. If you're behind in your mortgage payments, the lender still has a right to take your home when the stay is lifted after your discharge, which can be as little as four months. To prevent this, you'd have to catch up with your mortgage payments, and you're typically not permitted to do this after you file. The automatic stay will buy you some time to find a new place to live, but Chapter 7 doesn't offer much more than that.

Effect of Chapter 13

You may not be able to file for Chapter 7 in any event if your average earnings over the last six months exceed Florida's median income. As of 2012, the median income is $42,053 for a single person, and it increases for each additional family member. If you earn more, you won't qualify for Chapter 7, but can usually file for Chapter 13 instead. Chapter 13 can save your home from foreclosure because it involves entering into a three- to five-year payment plan, approved by the court, to pay off your debts. The automatic stay remains in effect during the entire term of your plan, so your mortgage lender is prohibited from taking any steps to foreclose for three to five years. You can include your delinquent mortgage payments in the debts you're repaying, then make your current payments as usual. Your house is safe unless you default on your Chapter 13 payments to the trustee or fail to make your current mortgage payments.

Second Mortgages

If you have a second mortgage or home equity loan against your home, filing Chapter 13 can deal with this as well. If you have your home appraised right after you file your petition and its value is less than what you owe on the first mortgage, the court can declare that the second encumbrance is unsecured. There's no equity in your home for it to attach to. If your second mortgage becomes unsecured, the lender moves to the bottom of the list for repayment under your Chapter 13 plan. If you don't pay off the entire debt during your plan, the bankruptcy court will discharge the balance. Your liability for it is removed, but you or your attorney must file a few more documents with the court to make this possible.