Many Americans will at some point fall behind on their mortgage payments. Although some may have the option of working something out with their lender, others may be left with no option but the possibility of losing their house. In some cases, bankruptcy can help homeowners save their homes.
The first thing a bankruptcy filing accomplishes is to stop the foreclosure process. Lenders will not be able to even schedule a foreclosure sale date until the court permits them. If bankruptcy is an option, the first thing you have to decide is what type of bankruptcy to file for. There are basically two types to choose from: Chapter 7 and Chapter 13.
The Impact of Chapter 7 Bankruptcy on a Foreclosure
A Chapter 7 bankruptcy delays foreclosure. However, it also usually results in the liquidation of most assets because it cancels all unsecured debt, leaving only secured debt, such as mortgages, exempt. In this situation, although you still owe your mortgage payment, it is more likely that you would be able to afford the payments because the Chapter 7 would have discharged all of your other debts.
The Impact of Chapter 13 Bankruptcy on a Foreclosure
According to most experts, a Chapter 13 bankruptcy filing is generally more effective in helping people save their homes from foreclosure. This type of bankruptcy filing can allow you more time (generally three to five years) to repair your finances. During this time, the court agrees to an income-based budget with monthly payments made to trustees, who in turn pay the bills. The trustees first pay off secured debt and then unsecured debt, starting with back income taxes and then unsecured debt like credit cards and medical bills.
It should be noted that a Chapter 13 bankruptcy filing will not allow the court to “cram down” loan balances on primary residences. In other words, bankruptcy courts cannot reduce your mortgage debt to the value of your home. Bankruptcy courts also cannot lower your interest rates or lengthen the term of your home loan. However, a Chapter 13 bankruptcy filing can “strip off” second mortgage, such as home equity loans or lines of credit, when home values fall below the first mortgage balances.
Call an Experienced Stockton Bankruptcy Attorney
Have you already filed for bankruptcy or are planning to file for bankruptcy? If so, it may be in your best interest to immediately consult with an experienced bankruptcy attorney to help you determine what is in your best interest.
For more information or to schedule a complimentary consultation with Stockton bankruptcy attorney Gurjit Srai, please call (209) 323-5558 or (559) 449-1447, or complete our online form.