Stay and pay for home, so continue paying mortgage during bankruptcy (during "stay")?

[Kristy12]

Thank you all for your help. I met with an attorney on Friday, and he will help me file for chapter 7. I will stop paying all my debts soon, in order to accumulate money for his down payment and final bill. I want to include both my first mortgage (106,000) and second mortgage (6,500) in the bankruptcy. I do not want to keep the house. I would like to continue to live in the house for 6-12 months post-discharge however, until I find employment in another city. I was under the impression that I should continue to make the mortgage/insurance/taxes payment on the first mortgage, in order to "stay and pay" (my attorney says NOT to continue paying the second mortgage).

But I just now read in another post that a debtor is not supposed to pay ANY creditors during the bankruptcy (between filing and discharge), because there is a stay prohibiting creditors from accepting payments? Is this right? I thought to "stay and pay" I had to be current on my first mortgage. How can I be current if I'm not supposed to pay it during the 2-3 months it takes between filing and discharge? I'm confused.

[justbroke]

You misunderstand. If you have "secured" property, you must pay in order to prevent the creditor from filing a Motion for Relief from the Automatic Stay (RFS) and then pursuing foreclosure or a repossession. The creditors that you do not pay before or after filing, are your unsecured creditors. Secured creditors, such as your mortgage or automobile lender, enjoy special treatment. In order to keep the collateral (your home or car) you must continue to pay.

There is no stay prohibiting creditors from being paid or for the creditor to deny your payment. The creditor stay only stops them from attempting to collect or using process to force you to pay. In other words, they can't "ask" or "demand" that you pay. (This is true even for secured creditors.)

Depending on where you live, there is a strategy where you stop paying your mortgage as well and go through the foreclosure process. The hope is that the foreclosure process takes months if not years. While this was a strong strategy from 2010-2013 (about now), the strategy may be losing its appeal. Florida had foreclosures that were taking 2-3 years. That was due to the foreclosure crisis caused by faulty paperwork. Now, Florida seems to be back in high gear with the foreclosures so they are taking the typical 7 months (from notice of default to foreclosure sale). It will vary based on where you live.

[btbeme]

To add to Justbroke... The moment you stop paying on a secured item (like a house), the clock will start ticking toward repossession of that property. Once you file Ch 7, that pretty much puts a halt to any specific action the creditor could take (such as seizing the property) but it does not "stop the clock." For instance, if your state has a 90 day foreclosure process, that 90 days will start once you are late on a payment. If the end of that 90 days comes BEFORE your discharge then it is likely that nothing will happen - the property will stay in your possession until after discharge (see below for the biggest exception). If the end of that 90 days come AFTER your discharge, your discharge does not restart the clock.

So, it IS possible to stay without paying for the duration of your filing, unless the creditor asks for and is granted relief from the automatic stay. If that happens, the creditor can immediately make efforts to claim the property. But if you stop paying at the beginning of your filing and your state has a short foreclosure process, it is possible that your discharge will get followed the next day with a foreclosure notice.

In the real world this does not happen so quickly, and there is a process that has to happen before foreclosure (some places take YEARS). Get informed about your state laws and talk to your attorney about the best strategy. While they are not "experts" on what might happen, they likely have a pretty good insight for the amount of time you have before foreclosure.

For us, it was almost 18 months.

[Kristy12]

Thank you both so much. I do understand now. I'll be sure to talk to my attorney about this.

[LadyInTheRed]

Is your home worth less or not much more than the balance of your first mortgage and are the two mortgages with different banks? If so, that is probably why your attorney told you to pay only your first mortgage. If the second forecloses, the first mortgage gets paid first from the sales proceeds. The second is not going to foreclose if they aren't going to get anything out of it after paying off the first and paying for the expenses of the foreclosure. If you stop paying the first, the bank may move for relief from stay and foreclose. Or they could take several months to foreclose and you might still have 6-12 months in the house. To almost guarantee that you have that much time, you can keep paying on the first, but let the 2nd default.