For year, we have associated bankruptcy with debt, moral failure, and other negatively-charged subjects. As economic experts prepare us for an international trade war, people every day are considering their options for debt relief. Thanks to a bad rap, most of them overlook bankruptcy altogether.
If you knew that bankruptcy could alleviate your debt and even save your home, would you take advantage of it? Bankruptcy is an entirely legal procedure that thousands of people across America have taken advantage of already, and your family could possibly benefit from this as well.
The Basics of Bankruptcy
While bankruptcy statutes vary from state to state and the exemptions will differ slightly depending on your situation, there are certain things that are always true about bankruptcy. There are two types of consumer bankruptcy commonly used by debtors: Chapter 7 and Chapter 13 bankruptcy.
Chapter 7 bankruptcy, known as the debt liquidation bankruptcy, allows an individual to sell their assets to pay back creditors as much as possible (and be forgiven for the rest). Thankfully, there are certain assets that are protected from liquidation, allowing you to avoid losing shelter or your commuter vehicle. With the right lawyer, you could argue for keeping your home.
Chapter 13 bankruptcy, on the other hand, is more of a "debt re-organization" bankruptcy. This allows a debtor to consolidate their debt into a single, affordable monthly payment over the course of three to five years.
Only a qualified bankruptcy lawyer will be able to evaluate your specific situation to determine if Chapter 7 or Chapter 13 would help you. Call one today!
Why People Should See Bankruptcy as a Tool
There are many benefits for a person filing for bankruptcy, but most people don't realize that bankruptcy can help prevent foreclosure. That's right—bankruptcy can be used as a weapon against foreclosure proceedings in many cases. When a person defaults on their mortgage, they have the right to fight the foreclosure through a bankruptcy attorney.
Here's how:
When people fail to make mortgage payments, the bank repossesses the secured debt's collateral—in this case, your house. In that sense, foreclosure is a debt collection process in which the remaining balance of the mortgage is taken by the bank in the form of your property. One of the chief protections of the bankruptcy process is the ability to cease all debt collection efforts. That means if the bank is foreclosing on your home, declaring bankruptcy forces the bank to retreat.
How Different Financial Situations Affect Foreclosure Strategies
Bankruptcy works in two ways: as a way to buy time to allow you to reorganize your finances and catch up on payments, or as a way to permanently keep your home (which is more likely if you have a regular income). Both types of consumer bankruptcy stop the foreclosure process, but your specific financial situation will determine which one will serve you best.
If you have a great deal of credit card and unsecured loan debt, Chapter 7 allows you to discharge most of them—leaving only your mortgage (and your car payment, if your car isn't paid off). With most debt off their plate, homeowners have a chance to make a repayment plan with their bank. For people with plenty of assets but not much income, this is ideal.
If you have a regular income that isn't large enough to accommodate all of your loan payments, you may be able to roll all of your debts into a single payment (i.e. file under Chapter 13). Because the size of the payment is relative to your wages, it will automatically be affordable. The lion's share of this payment goes toward paying the mortgage lender. As long as you make on-time payments for 3 to 5 years, you should be able to walk away with a clean slate and keep your home.
Beware though: mortgage lenders can still file for "relief" with the bankruptcy judge, freeing them to pursue foreclosure. Having a lawyer on your side ensures that the bank won't try to outmaneuver you.
The moment you decide to file for bankruptcy, creditors and collectors must halt all efforts to contact you and collect from you. Restructuring your debt forces the foreclosure lawsuit off of your plate and allows you some time to collect the money you need in order to get back on track.