December 17, 2017

My Parents’ House is in Foreclosure, What Can I Do?

One of the heartbreaking realities of my practice in insolvency law is getting a phone call from an adult child who has just learned that a credit card company has sued or obtained a judgment against his or her parent, or that their parent’s real estate is in foreclosure because of missed mortgage, HOA or real estate tax payments. In my line of work, it is rare to see a senior citizen with a fully-owned home; most have mortgages.

Here’s how this usually happens.

Medical bills, credit cards and missed mortgage payments

When medical bills (or other living expenses) are paid with credit cards, there may come a time when senior citizens on a fixed income can no longer service the debt.

Skipped mortgage payments are difficult to catch up. Seniors with medical bills sometimes choose not to rely on credit cards, instead using cash usually reserved for paying the mortgage and other real estate expenses to pay for health-related expenses.

Creditors take action. At some point the credit card company may attempt to collect the balance owed (including interest, fees and legal expenses) through a lawsuit.  Likewise, the mortgage company may initiate foreclosure proceedings. Seniors are the most reluctant group of debtors to seek bankruptcy protection, and do not even realize its benefits.

Sometimes senior citizens turn to their children for help only when the courts are involved. I recall too often the calls I receive from adult children who had no idea their parents were in financial distress, until receiving a call with the news that a sheriff’s deputy is trying to collect the judgment debt

Chapter 13 to the rescue

The good news is that Chapter 7 bankruptcy may provide some much needed debt relief to seniors with debts that they cannot repay; further, a Chapter 13 bankruptcy filing may keep some homeowners from losing their homes. I wrote this guide to help anyone facing foreclosure. It describes your legal rights and the role of bankruptcy in settling debts in an orderly and court-supervised manner.
[important]IMPORTANT: mortgage loans can be reinstated in a Chapter 13 bankruptcy case at any time before the foreclosure sale becomes final (a technical legal concept). This allows homeowners to stay in their homes and repay in their bankruptcy case the payments missed before the filing of their Chapter 13 bankruptcy case, as long as they keep current on their monthly payments as they are due during the bankruptcy. 

The affordability of this option depends upon the specific facts of the homeowner’s case, including their income, expenses, the equity in the property, and whether there are co-owners.[/important]