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How Bankruptcy Protection and Foreclosure Defense Intersect
Many homeowners who have fallen behind on their bills and are considering personal bankruptcy protection may also be at risk of losing their homes to foreclosure. If you're in this position, you may be wondering whether bankruptcy can help you save your home. That's a good question!
A quick lesson on bankruptcy:
Chapter 7 bankruptcy allows you to discharge, or erase, most of your unsecured debts, such as credit card balances, payday loans and other personal loans. Under normal circumstances, you can't get rid of tax debt or student loan debt through bankruptcy.
If you have secured debt, meaning the debt is tied to a specific piece of property such as a car or a home (this property is known as collateral), then you have a couple options. You can discharge the debt, which means you'll have to give the collateral to the lender. You can reaffirm the debt, which means you can hold onto the property but have to make your loan payments in a timely manner. Or you can redeem the property, meaning you agree to give the lender the value of the property and the lender agrees to forgive any remaining money you owe.
To qualify for Chapter 7 bankruptcy, you must meet what is known as a means test, designed to keep high-income individuals from filing for Chapter 7 bankruptcy.
Chapter 13 bankruptcy allows you to develop a debt repayment plan. This gives you several years to pay off most of your debts without incurring additional penalties or interest charges. At the end of the bankruptcy period, your creditors may agree to forgive any debt that remains. Chapter 13 bankruptcy is appropriate for high-income filers as well as those who want to save their homes.
Bankruptcy & Foreclosure
As soon as you file for bankruptcy, the court will issue something known as an automatic stay. That's a notice to your creditors-including your mortgage lender-to stop collection efforts. If you're in the midst of foreclosure proceedings, then those must pause, too. Even if your foreclosure has reached the point of a foreclosure sale, that sale will be postponed for at least a few months.
What happens next with your foreclosure will depend on what type of bankruptcy you choose.
If you've chosen Chapter 7 bankruptcy and are already in foreclosure or at risk of foreclosure, then you probably won't be in a position to redeem or reaffirm the debt. But you probably will be able to remain in your home for at least three or four months longer than if the automatic stay hadn't been issued.
(A mortgage lender can ask the bankruptcy court to lift the automatic stay so it can eventually proceed with the foreclosure.)
If you've chosen Chapter 13 bankruptcy, you'll also benefit from the automatic stay. Whether you ultimately lose your home to foreclosure or can save it through bankruptcy depends on several factors, including:
- Whether you'd like to remain in your home or would prefer to relinquish it
- Whether your lender has started the foreclosure process
- Whether your lender is willing to agree to your debt repayment plan
Bankruptcy attorneys and foreclosure lawyers can help you determine what strategy is best for you.
Visit LawyerLocator for more information about bankruptcy and foreclosure, and to locate a bankruptcy lawyer in your area.