Will Bankruptcy Stop a Foreclosure?
Many people faced with the prospect of foreclosure wonder if bankruptcy may allow them to keep their home and still meet their debt obligations. Bankruptcy can be a way to prevent foreclosure when other methods like loan forbearance, a short sale or a deed-in-lieu of foreclosure do not apply. When you declare bankruptcy, you accept the federal government's intercession in administering your estate and repaying your creditors.
Types of Bankruptcy
Under the U.S. Bankruptcy Code, there are six types of bankruptcy, but only two of these pertain to a person considering mortgage foreclosure.
Chapter 7 bankruptcy constitutes the liquidation of a person's property. People who file Chapter 7 do so to rid themselves of all debt inexpensively and expediently. However, while all personal liability is relieved, any liens remain. As there is most likely a lien on the home, the property will be relinquished to the lender as the collateral. Under Chapter 7, a homeowner would not only lose the home to the bank but may also cede other assets. Eligibility for Chapter 7 depends on income requirements and state thresholds.
In Chapter 13 bankruptcy, a person in debt who believes the debt can be repaid within a reasonable time period arranges to pay a certain percentage of his or her debt to the Bankruptcy Court for payment to creditors. The debtor remains under the Court-approved repayment plan until the debt is expunged. Homeowners who have a regular income and believe their financial difficulties to be temporary generally pursue this course of financial rehabilitation.
Benefits of Bankruptcy
While bankruptcy is an option not to be considered lightly, it can alleviate some of the financial hardships of foreclosure.
Chapter 13 bankruptcy allows the borrower to stay in the home. If you continue to make enough income to meet the repayment plan, you may avoid foreclosure and keep the home.
Chapter 13 may eliminate payments on any second or third mortgages held.
Chapter 7 bankruptcy cancels all the debt secured by a property, including all mortgage and home equity loans.
Bankruptcy, Foreclosure and Your Credit Score
Bankruptcy and foreclosure both damage your credit score. When deciding between bankruptcy and foreclosure, you must consider a number of factors, such as whether you intend to purchase a home again or what other important financial decisions will be affected in the near term.
This information on bankruptcy and foreclosure has been provided by foreclosure attorney in west palm beach Christian N. Scholin, 561-459-2587, www.scholinlaw.com.
