Saturday, November 5, 2011
Bankruptcy Can Help Save Your Home From Foreclosure
Bankruptcy Can Help Save Your Home From Foreclosure!
As the real-estate market lingers in the doldrums caused by the mortgage and banking crises that led to the Great Recession, many people still find themselves on the brink of foreclosure.
Even selling the house may not help, because the mortgage is underwater (when mortgage debt is higher than market value) and there could still be a substantial debt obligation after the sale.
When you have run out of all other options, can a bankruptcy save your home? Like many legal questions, the answer is, "It depends."
What It Depends On
A Chapter 13 bankruptcy may allow you to save your home from foreclosure. ("Chapter 13" refers to the governing chapter of the U.S. Bankruptcy Code.) A Chapter 13 uses a plan that essentially works like a court-ordered budget to pay your bills. For it to work, you must have regular income to fund the plan.
If you have a job and regular income, a Chapter 13 can help you save your house. You can pay your current monthly payments and if you have fallen behind in your mortgage, you can pay your arrearage in up to five years within the plan.
The Automatic Stay
Another useful feature of the Chapter 13 bankruptcy is that when you file it places what is known as the automatic stay on all collection activity against you. This stops the phone calls, collection letters and foreclosures. And it gives you time to create your proposed Chapter 13 repayment plan with your bankruptcy attorney.
While you are paying your mortgage and any arrears, you will also pay some percentage of your unsecured debt (debt with no collateral property to back it). So, if you had accumulatedcredit-card debt as you struggled to pay your mortgage (paying one bill one month and another the next month, for example,) a Chapter 13 filing permits you to discharge some of that credit-card debt.
How much unsecured debt you discharge will depend on how much money you are currently making, and size of your mortgage and mortgage arrears. Your bankruptcy lawyer will help you with the calculations. This relief will help free up funds to put towards your mortgage.
While bankruptcy still carries some stigma and will show on a credit report, debtors often find that it is easier to obtain credit after they have filed a bankruptcy than when they were buried under all their debts.
Debtors may even receive credit offers before their bankruptcies are completed. The reason is simple. Once you have discharged most of your debts, you have more money available for making payments on new credit.
If you start with a reasonable amount, carefully limit your debt and slowly rebuild your credit, the impact on your credit score of the bankruptcy may be much less than you might expect. If you successfully complete your Chapter 13 plan, it is possible your credit report will look better after the bankruptcy than it did before you filed the bankruptcy.
Done right, a Chapter 13 can help you save your house from foreclosure and allow you to rebuild your credit.