Bankruptcy May Prevent Foreclosure

Can Bankruptcy Prevent Foreclosure?

There are some cases where bankruptcy can help homeowners prevent foreclosure.  The first and foremost thing a bankruptcy will do is stop the foreclosure process.  Lenders are unable to proceed with a foreclosure until permitted to do so by the courts.

When filing for bankruptcy, there are two types to decide from: Chapter 7 and Chapter 13.

A chapter 7 bankruptcy will stop foreclosure, but this will usually lead to having to liquidate your assets.  Many BK attorneys prefer this method because it gets rid of all unsecured debt, but leaves secured debt such as your mortgage, exempt.  In a case like this, borrowers will still owe their mortgage payments but they can now afford to make them because all of their other debts have been discharged.

Although many experts claim that Chapter 13 is usually more effective at helping homeowners keep their home.  This gives them time to repair their finances, lasting anywhere from 3-5 years, over this period of time the court allows an income based budget with monthly payments made to trustees.

The trustees pay the bills, first paying off the secured debt. After that, the trustee pays off unsecured debt, starting with back income taxes.  Following this  comes unsecured debt, such as credit cards and medical bills.  If borrowers keep up on their payments they can emerge from bankruptcy with their homes still in their possessions.

Comments

5 Comments on "Bankruptcy May Prevent Foreclosure"

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