You may be one of many people struggling to keep up with their mortgages. Your mortgage can often be one of your largest monthly bills. With all the other bills you must pay, you may not always have enough for your mortgage.
When your financial situation threatens your home, you may need a way to slow things down so you can get your finances under control. Depending on your situation, a bankruptcy may be able to slow or stop a foreclosure.
Filing an automatic stay
When you file for bankruptcy, a judge orders an automatic stay. An automatic stay briefly stops creditors from pursuing the money you owe them. As long as it is in place, they cannot try to collect money. This gives you time to restructure your finances.
Depending on your bank, you may be able to use the extra time to negotiate loan modifications. Since the bank wants to get paid, they may be willing to work with you to make your loan payments manageable.
Avoiding a foreclosure with a Chapter 13 bankruptcy
If you have high debt but still have good income, a Chapter 13 bankruptcy may be a good option for you to keep your home. With a Chapter 13 bankruptcy, you create a plan to repay debt that lasts three to five years. If your plan spreads out your debt, it can give you more breathing room to keep up with your payments.
Avoiding a foreclosure in a Chapter 7 bankruptcy
If you don’t have much income and are filing bankruptcy to eliminate unsecured debt, like credit card or medical debt, you most likely will file for Chapter 7. Typically, this type of bankruptcy does not help with foreclosure. Your mortgage is considered secured debt since it has your home as collateral. Chapter 7 bankruptcies do not discharge secured debt.
However, with the automatic stay, Chapter 7 can give you extra time before foreclosure. That extra time can give you a chance to negotiate a loan modification. Or if you don’t want to lose the equity in your home, you may use the extra time to sell your home before the foreclosure.
Different situations mean different plans
While many people may face foreclosure, every foreclosure situation is different. You should always seek legal counsel when faced with foreclosure and filing bankruptcy. Bankruptcy and foreclosure laws often change and can be confusing.
If you are facing difficult financial times leading to foreclosure, know that you have options to keep your home.