If your hair turns prematurely gray by worrying over your mortgage payments and you find difficulty in catching up on your payments, then you are certainly heading straight towards foreclosure. If you are dealing with reliable lenders that you can count on, you can offer a convenient and affordable repayment plan to them. But if your lenders are reluctant and you fail to come to an agreement with them, then you have no options but filing bankruptcy. Had you given a thought before taking out the mortgage loan about ‘how much house can I afford’, you might have been able to evade the probability of defaulting on your payments in any way, thereby preventing yourself from filing bankruptcy. Filing bankruptcy might help you to cease or at least delay the foreclosure procedure.
Read on to know whether bankruptcy can prevent you from foreclosure or not.
Filing Bankruptcy and Automatic Stay
Both Chapter 7 bankruptcy and Chapter 13 bankruptcy can hold back the foreclosure proceedings, at least for the time being. Once you declare bankruptcy, the court immediately issues an Order for Relief which ensures an “automatic stay”. Automatic stay compels all creditors, including your mortgage lenders to stop the collection activity. Even if your house is already scheduled for a foreclosure sale, by an automatic stay the sale will be adjourned, for at least two to four months while the bankruptcy proceeding is pending.
Bankruptcy Attorney
Your first and foremost duty is to hire a bankruptcy attorney who can suggest the most viable bankruptcy option for you. Some of these attorneys also specialize in alternatives to bankruptcy, and might suggest you some other debt solution to get rid of your debt problems as well. As bankruptcy is quite a strenuous and upsetting event and has a long-term damaging impact on your credit rating, it is always a good idea to take a solid look at other possibilities than bankruptcy.
Chapter 13 bankruptcy
If you have a steady flow of income, you are eligible to file under Chapter 13 bankruptcy and can work out the way to make up the payments in the future. Under chapter 13 bankruptcy you would be offered an affordable and prolonged repayment plan which has less impact on your long-term credit rating than the chapter 7. With Chapter 13, you have to make your current mortgage payment each month along with part of the “arrearage”-payments that you have missed so far. If you fail to keep up with these payments, the mortgage lender can ask the court to lift the bankruptcy protection, and restart the foreclosure process again. If you have a second mortgage on your house which is not secured by your home value, due to a drop in property values or some other sudden incidents, the courts will declare the second mortgage as an unsecured debt and it will be eradicated under chapter 13.
Chapter7 Bankruptcy
Chapter 7 eliminates all mortgage debts, second mortgages, unsecured debts and home equity loans. You cannot stop foreclosure by filing for chapter 7, but you can continue to live in your home till two-to-four-months of the bankruptcy procedures.
Therefore, to conclude, you can prevent foreclosure by bankruptcy to some extent. The Chapter 13 Bankruptcy can certainly put a stop to foreclosure whereas chapter 7 bankruptcy will only delay it.
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