The New Jersey Bankruptcy Process When Losing A House

This blog pertains to individuals who are either unable to, or do not wish to, save their house from foreclosure.  A person may be unable to save their house, due to a loan modification denial or a substantial reduction in income. Sometimes people understand that their house cannot be saved through any option, including bankruptcy. A person may understand that saving a house is too costly, not worth the monthly payment, or would prefer renting at this time.

Although a chapter 13 may save someone’s house, a person may change their mind and decide to surrender their house, while in a New Jersey chapter 13. A person may modify their chapter 13 plan and surrender their house at any time. If a modified plan surrendering the house is filed with the court, the mortgage company will likely ask the court for permission to proceed with the foreclosure action. The court will likely grant the mortgage company permission to proceed with the foreclosure action. After such permission is granted, both the chapter 13 case and the mortgage foreclosure action will continue simultaneously. At this time, the homeowner, may continue to reside in the property, until the house is sold, at sheriff;s sale. Typically, the house is taken by the mortgage company and not the bankruptcy court or trustee.

A chapter 7 will not allow a person to save a house that is in foreclosure due to mortgage payment arrears. However, the filing of a chapter 7 will initially stop the foreclosure action. In a chapter 7, if the house does not have substantial equity, the trustee and the court will not sell the property. In other words, typically the bankruptcy court will not take the property and the house will be lost by way of the foreclosure action that is not connected to the bankruptcy filing.

If a chapter 7 debtor is in arrears with their mortgage payments, typically, the mortgage company will file a motion with the court asking for permission to proceed or commence a mortgage foreclosure action. Similar to the chapter 13 situation, the mortgage company will likely be granted permission to proceed with the foreclosure action, while the chapter 7 case continues. If the mortgage company does not ask the court for permission to continue the foreclosure action, the mortgage company will be permitted to proceed with the foreclosure action after the chapter 7 case is discharged.  A New Jersey chapter 7 case process is about four months to discharge. Ultimately, the house is lost by way of the mortgage foreclosure action and not by way of the bankruptcy case, court, or trustee.