In Minnesota, the foreclosure process takes a pretty long time. The average non-judicial (most common) Minnesota foreclosure lasts anywhere from 9 to 12 months, sometimes even longer! When faced with foreclosure, a homeowner has a few options 1) surrender the home to the bank (and potentially file Chapter 7 Bankruptcy), 2) redeem the home, or 3) file Chapter 13 Bankruptcy. Here I will discuss the pros and cons to each of these options.
Surrendering the Home
As stated above, the foreclosure process in Minnesota takes about 9-12 months on average. If the foreclosure process begins on your home, you may decide to let the bank have the home. This is a natural choice if you cannot afford the mortgage payments any longer or if your home is underwater (underwater = the value of the home is less than the mortgage balance). The greatest benefit to this option is the ability to live in your home for 9-12 months without needing to make a mortgage payment. If you are struggling financially or want to use that time to save up for the future, this is a nice financial benefit to surrendering your home.
Own of the downsides to surrendering your home to foreclosure is the time you must wait until you can buy a new home. FHA loans are the most forgiving to foreclosure victims – they require three years before you can buy a new home with them. Another downside to surrendering is if there is a balance on your mortgage after the foreclosure is complete. If a bank is not able to sell your home for more than your mortgage balance, they may pursue you for the difference. One way to prevent this issue is to file Chapter 7 bankruptcy before, during, or after your foreclosure. Since the debt on the mortgage following the foreclosure sale is considered an unsecured debt, a Chapter 7 bankruptcy would discharge the debt and wipe the foreclosure from your credit report!
If you are not underwater on your mortgage, meaning you have good equity in your home, you may want to redeem your home or file Chapter 13 bankruptcy.
Redeeming the Home
A few months into the foreclosure process, there is a sheriff’s sale of the home. The sheriff’s sale is an auction style sale of the home to the highest bidder. One of the ways to redeem your home from foreclosure is to purchase it back as the highest bidder in the sheriff’s sale. This would require the ability to purchase the home, but technically a possibility!
Another way to redeem your home is by paying back the mortgage arrears (the amount you are behind on payments) plus costs during the redemption period. In Minnesota, the redemption period is typically six months long and begins after the sheriff’s sale. The redemption period exists to give homeowners an opportunity to save their home from foreclosure. If the homeowner pays the bank the mortgage arrears and costs before the redemption period is up, the sheriff’s sale is cancelled and the foreclosure process ends.
The obvious benefit to redeeming your home is the ability to keep your home. The biggest issue with redeeming your home is finding the ability to pay the mortgage arrears and costs within the six month redemption period.
If you need longer than six months to pay back your mortgage arrears and costs, but you still want to keep your home, a Chapter 13 bankruptcy may be best for you!
Filing Chapter 13 Bankruptcy
A Chapter 13 bankruptcy is basically a government-sponsored debt repayment plan. In filing your Chapter 13 bankruptcy, we look at your average income and expenses in a month and calculate your disposable income (money left over after all household expenses are paid). Your disposable income helps us determine the payment plan you will arrange with the bankruptcy court. Once we know how much you can afford in payments, we file your case with the proposed payment plan that lasts anywhere from 3-5 years. After the 3-5 years, any remaining unsecured debt is discharged and you get your life back!
One of the benefits to a Chapter 13 bankruptcy is the ability to pay back mortgage arrears through your plan payments. The Chapter 13 plan must cover the mortgage arrears and costs owed on your home in full. Typically, as long as you successfully make your Chapter 13 plan payments each month and all future mortgage payments, you will successfully save your house from foreclosure!
A Chapter 13 bankruptcy is often a better option than redeeming your property because it gives you up to five years to pay back your mortgage arrears and costs, rather than the six months in the standard foreclosure redemption period. If you are looking for a long term (3-5 year) payment plan to pay back your mortgage arrears and costs and you have the ability to make all future mortgage payments, this may be the best option for you!
Bonus: a Chapter 13 bankruptcy will discharge your unsecured debt, too! Win Win!
