When you’re hit with a foreclosure notice in New York City, it turns your world upside down. You will likely think back to the day you acquired the property as a smart investment or a place where you expected to retire in comfort. Now your mortgage lender has announced its intention to force you out, and you may be wondering if filing bankruptcy can help you stay in your home as well as provide debt relief.

The answer to this question is maybe. It depends on what chapter you file, how much equity you have in the property, and other factors that are best addressed during an initial consultation with a New York bankruptcy attorney.

Foreclosures are an issue in New York

Even before the COVID-19 pandemic impacted the livelihoods of millions of New Yorkers, people were experiencing financial hardships and getting the runaround from the bank. They applied for loan modifications and submitted documents proving hardship, only to be pestered for missing or inaccurate paperwork until a crucial deadline was missed and foreclosure actions commenced.

What these distressed homeowners didn’t know is that a more effective way to get a mortgage modification would have been to let a foreclosure action proceed and try to settle the issue under the supervision of the court. Instead, they went through huge stress and, in desperation, many of them turned to ‘foreclosure rescue’ companies only to be scammed.

If you’re being foreclosed upon, contact a bankruptcy law office so that you don’t risk having your home literally stolen from underneath you. Depending on your personal financial circumstances, bankruptcy relief may be the best outcome.

Can you keep your home if you file for bankruptcy in NY?

At Gershburg Law, we deal with a lot of homeowners who want to know whether filing for bankruptcy in New York can stop foreclosure. An automatic stay is issued by the bankruptcy court after you file, which requires your mortgage holder to halt any foreclosure in progress. However, it’s a temporary respite, and whether or not you can keep the property depends on conditions like those reviewed below.

Chapter 7 bankruptcy

If you want to file Chapter 7 and keep your home, you must be current with your mortgage payments. Under the U.S. Bankruptcy Code, You also are limited in the amount of equity that you can have in your home. If you use the federal exemption system, you can protect up to $25,150 worth of equity. (This amount doubles if you are married and filing a joint bankruptcy petition with your spouse.) If you go with the New York state exemptions, the amount you can protect varies from one county to the next. 

  • $165,500 in Kings, Queens, Bronx, New York,  Nassau, Putnam, Suffolk, Westchester, Richmond, and Rockland
  • $137,950 in Albany, Columbia, Dutchess, Orange, Saratoga, and Ulster
  • $82,775 in all other states 

It is important to note that you can only protect your share of any equity. For example, if you own your home with someone else and the home is appraised at $600,000, your equity share would be $300,000. If the mortgage balance is $400,000, the equity is $200,000, half of which ($100,000) is your share.

If you decide to file Chapter 7 bankruptcy, you will have to pass a means test that compares your household income to the median amount for a similarly-sized household in New York state. If you make the same amount or less, you will be allowed to file. If you make more, you may still be able to seek Chapter 7 debt relief if deducting your reasonable living expenses brings your income within the allowable amount. If not, you will have to file Chapter 13.

Chapter 13 bankruptcy

If you are not current on your mortgage and want to keep your home, you may be able to file a Chapter 13 bankruptcy case, which gives you three to five years to catch up on mortgage arrears. (You will also have to keep making your regular mortgage payments as they come due.) These affordable monthly payment plans also let you pay off your credit card and other debts, often for less than the total amount owed.

If you have a second mortgage (e.g. in the form of a credit line or home equity loan), you may be able to convert it into an unsecured loan if the appraised value of your home is less than the amount you owe on your first mortgage. This process, known as a mortgage cramdown or mortgage stripping, lets you pay off the second mortgage at a significantly lower amount in your repayment plan.

Chapter 13 may be a good option for New Yorkers who have a stable income, as you will be required to maintain the agreed-upon payments for up to five years. If you lose your job or experience adverse financial circumstances that prevent you from staying current, you can ask the bankruptcy court to modify your plan and reduce the payment amount or convert your case to Chapter 7.

Sometimes, it’s better to let go

If your home is underwater (meaning that it’s worth less than the amount you owe on the mortgage), it may make better sense to let the bank take it back. Perhaps it is in a state of disrepair that resulted in a poor appraisal or the housing market is currently in terrible shape, making the recommended sale price a lot less than your mortgage balance. Despite the emotional attachment, the property is now a burden instead of a haven.

Despite this knowledge, a lot of people still struggle to turn things around. They do everything they can to stay in the home: work overtime, borrow money from friends and family, and take out additional loans. Eventually, they realize that the situation is hopeless and call a bankruptcy lawyer. If they had scheduled an initial consultation sooner, they could have avoided all that stress, exertion, and extra debt, and been on the road to financial recovery much faster.

Do you have more questions about foreclosure and bankruptcy in NYC?

If you are facing foreclosure, the thought of losing your home is understandably frightening. While there are no guarantees, filing for Chapter 7 or Chapter 13 can protect the property or give you additional time to reach an agreement with your lender. At Gershburg Law, P.C., an experienced New York bankruptcy lawyer will review your financial situation with you and provide honest legal advice about whether bankruptcy can help you stay in your home as well as provide relief from your unsecured debts and a fresh start. For more information or to schedule a free consultation with our law firm, call 866-554-4638 or contact us online.