Bankruptcy: Is Your Home Safe?

With the unfortunate circumstance of filing for bankruptcy, home foreclosure may loom large as a result of failure to make payments in time due to rising cost of living and increasing hardships due to wage freeze or job loss. Chapter 13 bankruptcy may be the one way to stop the home being foreclosed, with the other option being Chapter 7 bankruptcy. Losing or foreclosure of your home; still an embarrassing and sorrowful event - should be avoided in case of bankruptcy declaration.

What is Foreclosure?

Maybe due to personal difficulties like job loss, disability or accident and unexpected medical or other expenses, you may be unable to meet expenses and incur debts with mortgage or lien on your residence. If you fail to pay the mortgage payments, after 15 days or so later, the bank or the lender will put pressure on you for the payments. But if you do not either do the payments or take any action for loan modifications, after 90 days, the mortgage company/bank will start the process to take possession your home. Because the lien is on the house, they will get legal recourse to evict you from the home and take it into their possession. This is foreclosure of home.

How to Avoid Foreclosure

The only way to avoid foreclosure of home is to declare bankruptcy. There are 2 ways of doing it. Chapter 7 bankruptcy for which you need to qualify or you can declare Chapter 13 bankruptcy. Once you declare bankruptcy, thanks to the bankruptcy laws, automatically a stay will stop foreclosure proceedings.  Soon after filing for bankruptcy, the debtor must file a plan for repayment, failing which the stay will be lifted. The plan is to work out the difficulties by creating better and easier payment options to meet the obligations over time and pay off the debts ultimately and avoid foreclosure.

Chapter 7 Bankruptcy

You have to qualify with a means test. If you so qualify for this and if your home comes under ‘exempt’ property, then you can keep the home, try to get a ‘reaffirmation agreement’ with the mortgage company. If you are current on mortgage payments and keep doing payments regularly, you will keep the house; but the court may elect to sell the non-exempt property to pay off.

Chapter 13 Bankruptcy

Chapter 13 will be a better choice as it allows a debtor to pay debts over time, usually 3 to 5 years, and keep property. This is called a ‘wage earners’ plan’. The idea is to reorganize the debts to allow a debtor to continue to make payments over a period of 3 to 5 years. The debtor should have a steady job or income for the repayment duration time. And you get to keep all secured debts, cars and home.

After filing for bankruptcy, to save your home, the plan should be to try for regular payment of the loans and/or try for loan modification. The operative word will be regular and timely repayment of debts.

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