Foreclosure & Bankruptcy....
Bankruptcy is something that people commonly think about when they are considering saving their homes. Bankruptcy can help you keep your home or at least get you out from under your mortgage free of tax liability resulting from your debt write offs. Also, because bankruptcy can delay the foreclosure process, bankruptcy can save you money to deal with life after your bankruptcy.
When you file bankruptcy all collection actions, which here includes the foreclosure process, come to a halt. In order to get that stay removed, your lender will have to go to court and request a motion for relief from stay. Importantly, although a foreclosure may not occur once you have filed, the clock is still ticking if you have received your notice of default. For more information on how that works, look here.
How does a Chapter 7 bankruptcy help with a foreclosure?
A Chapter 7 is a way to walk away from most of your debts immediately, if you qualify for it. A Chapter 7 usually only lasts four months. A Chapter 7 will not prevent a foreclosure in the long run, although while your case is proceeding you may be able to live in your house rent-free and save up money.
How does a Chapter 13 bankruptcy help stop a foreclosure?
A Chapter 13 bankruptcy is a restructuring of your debts, allowing you to pay them back over time. Suppose you are behind $5,000 on your mortgage. If you file a Chapter 13 bankruptcy and propose a plan under which you will make your current payments and pay off the $5,000 over three years. If you successfully complete all of your payments according to the plan, you can keep your home!
A Chapter 13 can be an attractive fix, but it may be that you cannot afford a plan that the court will approve. Some debts, (e.g., child support, back taxes) must be paid in full during the restructuring plan. Also, you must have regular income to qualify for a plan so that you can meet your daily expenses as well.