Bankruptcy

A homeowner can file a bankruptcy prior to the foreclosure sale of the home. The bankruptcy filing results in an automatic stay of the foreclosure. The stay can provide you with essential time to plan and prepare you and your family’s financial future.

A bankruptcy allows a home owner to stay in the home and prevents all creditors and debt collectors from pursuing you for monies owed.

The automatic remain applies to foreclosures, wage garnishments, utility shutoffs, repossessions, civil lawsuits, and debt collection calls. Your lender has the option of trying to have the automatic stay lifted, but this process typically takes 2 to 3 months.

Chapter 7

Chapter 7 bankruptcy means that you cannot afford to pay your bills; including your mortgage. The purpose of filing a chapter 7 is to eliminate your debt including the money owed to the bank. Once the bankruptcy is discharged, the debt is eliminated.

While you no longer owe money to the bank, Chapter 7 does not dismiss the foreclosure. The bank still has a right to enforce the mortgage resulting in a judicial sale of your home. The reason is that while your obligation to repay is released, the mortgage on the home is not canceled.

Chapter 13

You must be able to afford the new payments and make them on time. In Chapter 13, there is an opportunity to keep your home and prevent foreclosure. During the automatic stay, you have an opportunity to work out a new agreement with your lender. This agreement will likely consist of paying off the late payments and late interest during a period of up to 5 years as part of a new loan agreement.

One advantage in Chapter 13 is the opportunity to eliminate the second and third mortgage.