If your start missing your mortgage payments, you may be faced with the prospect of foreclosure. You may have tried to work with your lender, to pull off a short sale, or to get a deed in lieu. If nothing has worked for you, bankruptcy might be a way for you to avoid foreclosure, or at least to mitigate its effects. In large part, this would be due to the "automatic stay" that bankruptcy triggers. What this does is force creditors to stop collecting. This includes foreclosure, delaying its onset or stopping it in its tracks. If the lender successfully files a motion to lift the stay, however, this foreclosure protection would be removed. Even if this happens though, you will probably have bought yourself a couple of months of time to get back on your feet. You could get an even longer respite if the lender delays this legal action.
To protect yourself from foreclosure, Chapter 13 bankruptcy may be a good way to go. The tricky part of this bankruptcy can be qualifying for it, as you need to have enough income to be eligible for this process. This reorganization bankruptcy allows you to meet your mortgage payments by restructuring them; it also enables you to get caught up on arrears. You usually are given three to five years to pay off your debts. If Chapter 13 works, you may emerge debt-free and still be a home-owner. With Chapter 13 bankruptcy, you might also be able to get your second and third mortgages discharged. This can work if you do not have any more equity to secure subsequent mortgages. So your second and third mortgages can be labeled as unsecured debt in bankruptcy, which means that you might never have to pay these off.
Chapter 7 bankruptcy might be a tenuous option for holding foreclosure at bay. For one thing, it will usually last only a few months, which may not be enough time for you to get caught up on payments. Now a couple of months may be the delay you need to find a solution with your lender, and Chapter 7 may be able to give you this time. It can discharge your unsecured debts, and you might be able to save up money while you are in bankruptcy. You would not pay mortgage while Chapter 7 is processing. It can also discharge debt that your home is securing, which can mean your mortgage, subsequent mortgages, and home equity loans. Chapter 7 may be enough to save your home, but even if it is not, you might be able to save up enough for the next steps in life.
This bankruptcy cannot remove liens. What this means is that when you signed a promissory note saying that you will repay the loan for your home, you probably also signed a security agreement, which acts like a lien. What this means is that if you do not pay your mortgage, you could still end up in foreclosure. Another problem you could face with Chapter 7 bankruptcy is that it is a liquidation bankruptcy, where your assets can be sold to pay off your creditors. This includes your home.
That being said, either type of bankruptcy can be used to escape foreclosure. Even if you cannot avoid losing your home, bankruptcy can free you from much of your debt while letting you save up so you can move on. If bankruptcy does keep you from avoiding foreclosure, it is important to note that bankruptcy inflicts less harm on your credit score than does foreclosure. Foreclosure can hamper future efforts for buying a home, as it will stay on your score for years. With bankruptcy, you can start strengthening your credit almost immediately in some cases.
Consult with a bankruptcy lawyer today to find out which bankruptcy you qualify for, and whether or not you might have alternatives to bankruptcy. If you have any other questions, contact an experienced bankruptcy attorney today!