If you are facing foreclosure, bankruptcy might be able to help, but is by no means a permanent fix to the problem. In many cases a Chapter 7 Bankruptcy may delay the foreclosure and allow for a lump sum pay back. Others may be able to save their home by filing a Chapter 13 Bankruptcy that allows for a payment plan to stop the foreclosure. Lets look at the details of a foreclosure and how a bankruptcy may change the ultimate outcome.
Foreclosure takes numerous steps by the lender in the legal process. The lender may begin this after 3-4 missed payments. This process can be very long. During this time a homeowner may have a chance to negotiate a short sale, or a loan in lieu of foreclosure. If these measures do not work then bankruptcy may be considered.
When a person petitions the court for bankruptcy an automatic stay is granted that requires that creditors stop their collection process immediately. This includes foreclosure action as well as car repossession, wage garnishment or even harassing creditor phone calls. In the case of a foreclosure, the sale will be legally postponed unless the lender gets a motion to lift the stay or the foreclosure notice is already filed.
Once the foreclosure is temporarily stopped, the homeowner needs to decide whether saving the house is the best course of action or whether letting it go is for the best. Questions will be raised to determine if the income justifies owning the house not just the person’s sentimental attachment to it. If the ultimate decision is to save the home, then a Chapter 13 could be the best option. Beyond the automatic stay a Chapter 13 will allow a home owner a chance to repay the past due mortgage over 3-5 years. In the case of a Chapter 7, the homeowner would need to come up with money upfront to keep the house from going into foreclosure. These are complex issues that should be reviewed by a qualified and competent attorney.
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