Foreclosure – What You Need to Know When Bankruptcy is Near
One of the first questions asked when filing for bankruptcy is whether foreclosure is necessary. For most people, their home is their most valuable possession. Losing a home in bankruptcy is devastating. Fortunately, filing for bankruptcy doesn’t always lead to foreclosure.
What is Foreclosure?
Foreclosure is a legal process where a mortgage lender attempts to recover the unpaid balance of a loan from a borrower. For this to occur, the borrower is no longer making payments. If you have fallen behind on your mortgage payments, you may qualify for bankruptcy protection. This is one way to delay the foreclosure process. Additionally, it can buy time to catch up on past due payments.
However, it’s not always possible to keep your home in bankruptcy. There are two main types of bankruptcy – Chapter 7 and Chapter 13. Which foreclosure option chosen will depend on your specific situation.
Chapter 7 Bankruptcy
During Chapter 7 bankruptcy, the nonexempt property is sold to pay back creditors. This option is also known as liquidation bankruptcy. However, certain property is protected under state or federal bankruptcy exemptions. In some cases, this may include your home. Additionally, Chapter 7 bankruptcy can free up money to help catch up on delinquent mortgage payments. Relieving debt such as medical bills or credit cards can give you a chance to catch up on your mortgage.
For most, this option is the most attractive of the two. It’s faster, easier, and can help eliminate debt without a court-ordered repayment plan. However, this option is not for everyone. If you have a lot of equity in your home and are already behind on your payments, the courts may sell your home to your creditors. Furthermore, if you can’t prove you will be able to make future mortgage payments, foreclosure is imminent.
Chapter 13 Bankruptcy
During chapter 13 bankruptcy, the court establishes a repayment plan. This option is commonly referred to as reorganization bankruptcy. In this option, debts are repaid over the course of three to five years. Chapter 13 bankruptcy has a built-in tool for catching up past due mortgage payments. With this option, past-due mortgage payments can be made while still making current ones. In many cases, this allows you to keep your home.
Finding the Right Foreclosure Defense Attorney
If you are having trouble paying your mortgage, there are options to keep your home. Filing for bankruptcy can be a complicated process and it’s not right for everyone. Therefore, hiring an experienced foreclosure defense attorney is key. With a knowledgeable attorney on your side, you can determine whether declaring bankruptcy is the right move for your financial situation. Let us help you determine which bankruptcy chapter is right for you.