Which type of bankruptcy can save my home from foreclosure?
When faced with foreclosure, you may be considering bankruptcy. It is important to understand that one type of bankruptcy may be better at saving your home than another.
If you fall behind on your mortgage for whatever reason, you can face foreclosure. Although the loss of your home in a foreclosure sale is a frightening thought, it is important to understand that it is not a foregone conclusion. There are several ways of keeping your home, but filing bankruptcy may be the surest solution. For some, either type of bankruptcy can help. For others, one type of bankruptcy may be better than another.
Chapter 7 and foreclosure
The foreclosure relief that Chapter 7 offers begins as soon as you file. The automatic stay goes into effect during this time, which then stops the foreclosure process as well as other attempts to collect outstanding debts (i.e. phone calls, lawsuits, etc.). This gives you some time to assess your financial situation and decide what you are going to do next.
Although the automatic stay is a powerful tool, it does not last forever in Chapter 7. If your mortgage is not brought current during the process, your lender may ask the court to lift the stay and reinstitute foreclosure proceedings against you. However, the debt relief that Chapter 7 offers can make it much easier for you become current on your mortgage. Chapter 7 eliminates almost all of your unsecured debts, such as medical bills and credit card debt, which allows you to devote more of your income to paying your mortgage.
Due to its nature, Chapter 7 is generally better suited for those struggling to pay their mortgage because of burdensome unsecured debt. However, if you cannot catch up the mortgage within two or three months, Chapter 7 may not work for you.
Chapter 13 relief
If you need extra help or time to become current on your mortgage, Chapter 13 bankruptcy may be the better option. During this type of bankruptcy, you also receive the protections of the automatic stay. However, unlike Chapter 7, your lender may not take your home later in the bankruptcy process, assuming that you are fulfilling the duties in the Chapter 13 payment plan.
In Chapter 13, you make monthly payments towards your overdue mortgage debt using a payment plan. Under the plan, you have three to five years to repay your mortgage arrearages, which keeps the amount you must pay each month affordable. While you are paying off this debt, your lender is legally prohibited from foreclosing on your home. After the payment plan ends, you emerge current on your mortgage and free of most other debts, which allows you to start over again in a financial sense. Also, once the case is filed, you need to start paying your regular mortgage payments.
Chapter 13 is also beneficial if you are underwater on a second mortgage, as Chapter 13 may treat this debt as unsecured. Like most other unsecured debts, second mortgages are discharged during the process. This means that your obligation to repay your second mortgage may be eliminated.
An attorney can advise you
If you are struggling to repay your mortgage, you have many options available to you. Because of this, bankruptcy should not always be considered the default option. An experienced bankruptcy attorney can review your debt situation and recommend the best way of keeping your most valuable possession out of a foreclosure sale.