The State of New Jersey runs a free foreclosure mediation program. Mediation is an opportunity to try to negotiate a payment plan with the lender, with the assistance of a person who tries to help the parties reach a compromise. You must request mediation within 60 days of the date you receive the foreclosure complaint. If you do not request mediation quickly, you will lose the right to participate. If you miss the deadline, you may ask the court for permission to mediate, but you must be able to show “exceptional circumstances” or the court will deny your request. An exceptional circumstance might be an increase in income that did not exist during the 60-day period, or some other very special reason you missed the deadline.
Under the state’s mediation program, mediation does not stop the foreclosure process from continuing. If the mediation is successful, and the parties come to an agreement, they may agree to stop the foreclosure. Remember that the foreclosure process will continue while the mediation is going on. The foreclosure process will not stop unless there is a court order or a written agreement to stop the foreclosure.
In order to have a successful mediation, you need to know the terms of your mortgage and how much you can realistically afford to pay (see Getting Started). A lower interest rate, a lower amount of principal, or a longer amount of time to pay could lower your monthly payments. Unfortunately, the State no longer provides housing counselors and attorneys to help homeowners in mediation.
Housing counselors are professionals who can help you with budget preparation, filling out forms, and negotiation with a lender. They are not lawyers, and they cannot tell you whether you may have a defense to foreclosure or whether you might be better off in bankruptcy. Be very careful about housing counselors who charge a fee. Many companies claim that they can help you, but they really cannot. Look for a free or low-cost housing counselor.
Sometimes, bankruptcy can help you save your home, whether or not you have claims and defenses against the mortgage company. Bankruptcy may be especially helpful if you have more than one mortgage on the property or if you own a multi-family residence. In some instances, you may be able to strip-off (eliminate) second mortgages, such as home equity loans in bankruptcy or the 20 part of an 80-20 purchase money loan. If you have claims and defenses to the mortgage, these can be raised in bankruptcy to help reduce (or eliminate, less frequently) the amount that you owe.
As soon as you file a bankruptcy, all court actions against you are automatically stayed (stopped). Therefore, filing bankruptcy automatically stops foreclosure actions and sheriff’s sales. This stay gives you some temporary breathing room to try to sort things out. You are eligible for this automatic stay unless you have filed several bankruptcies recently that have been dismissed.
There are two types of consumer bankruptcies. One is called a Chapter 7 and the other is called a Chapter 13.
Chapter 7 bankruptcy
In a Chapter 7 bankruptcy, the court will discharge (cancel) most of your unsecured debt. Unsecured debt means that there is no collateral for the debt. For example, credit card debt is usually unsecured—you have not promised the credit card company that they can take your property if you don’t pay your debt. On the other hand, mortgages are secured debt—you have promised the mortgage company that your home can be sold (through court action) if you do not pay your mortgage debt. Therefore, your mortgage will not be cancelled in a Chapter 7 bankruptcy.
Chapter 13 bankruptcy
In a Chapter 13 bankruptcy, you will be required to pay your secured debt a little at a time, over no more than five years. If you have a good mortgage, but you had a temporary setback (such as an illness or temporary job loss), a Chapter 13 bankruptcy can help you get back on track. In order to qualify for a Chapter 13 bankruptcy, you must be able to afford to make your current mortgage payments. You must also have enough extra income to pay off the mortgage arrears a little bit at a time.
If there is any chance you might need to file bankruptcy, you should contact an approved credit counselor. A list of approved credit counselors can be obtained through the Bankruptcy Court’s website. You must get a certificate showing that you completed credit counseling or the bankruptcy court will dismiss your bankruptcy. Your credit counseling certificate is good for six months.
You can file bankruptcy at any time, but it is best to file bankruptcy before final judgment enters against you in a foreclosure action. It is critical to file before Sheriff’s Sale, or you will lose the legal right to cure the default. You will still have the legal right to redeem the property as long as you file within the 10-day redemption period.