Can you prevent home foreclosure if you file bankruptcy? The answer is yes, but the ability to do so will depend on the type of bankruptcy you choose, along with your capacity to pay off or finance your debts. Below you can learn how Chapter 7 and 13 types of bankruptcy may or may not help you prevent debt collectors from foreclosing your house.

Differentiating Chapter 7 and 13 Bankruptcies

A debtor who filed a bankruptcy petition under Chapter 7 may be entitled to have most of what he owes to be eliminated, as long as these fall under the category of dischargeable debts. However, only debtors whose salaries are below the state median income can avail of these benefits. 

Getting a fresh start without dealing with unpaid debts becomes possible through a trade-off: your personal property in exchange for freedom from your financial problems. All valuable assets that you give up will be placed in a bankruptcy estate to be liquidated by a trustee, and the proceeds used to repay your creditors. At the end of your case, all your non-exempt debts that are dismissed by the bankruptcy court will be listed in a discharge notice.

On the other hand, filing for bankruptcy under Chapter 13 requires the filer to still pay off his balances but under a new payment plan that spans three to five years. In essence, this type gives you an extension for paying your dues, and in return, you are able to keep your properties unlike in Chapter 7.  

When Filing for Bankruptcy Prevents Foreclosures

There are many bankruptcy options for you to choose from, but if stopping home repossession is your goal, then you may be better off filing Chapter 13 bankruptcy. The main reason behind foreclosures is unpaid mortgages. Chapter 13’s repayment plan allows you to “catch up” on overdue payments, thus avoiding higher interest rates or overstretched personal credit lines. 

If you want more information on how Chapter 13 works with a foreclosure, consult with bankruptcy attorneys who have worked with cases of foreclosures before, such as those from a reliable bankruptcy firm, Want A Fresh Start.

Halting foreclosure is still possible for someone who declares bankruptcy under Chapter 7. However, this path is only effective if you are not behind on your monthly installments, because the bankruptcy court may allow you to pay mortgages and keep your home if you choose to.

When Declaring Bankruptcy Do Not Lead to Foreclosure Prevention

What becomes discharged in Chapter 7 bankruptcy is the unpaid amount on your mortgage note and not the lien on your property. Let’s say you are behind by 20 monthly payments, declaring bankruptcy can wipe out the total unpaid amount, but your creditor can still continue a pending case for foreclosure. This rule applies to condominium liens or association liens.

Unlike when you file bankruptcy under Chapter 13, Chapter 7 does not provide you with a path to catch up on mortgage payments. Moreover, the removal of liens is more probable with a Chapter 13 case. Most jurisdictions allow the process of stripping liens when a court deems that the property value at the foreclosure sale will not be able to pay for the lien. However, most bankruptcy courts do not consider this for those who petitioned for Chapter 7. 

Find the Best Solution to Your Financial Problems

Although Chapter 7 may be limited in its capacity to avoid foreclosures, it provides multiple paths to debt relief for struggling homeowners, one of which is the automatic stay. A stay temporarily ceases the lender’s collection activities and foreclosure proceedings. Another benefit is the fast processing time of 3 to 4 months. 

The type of bankruptcy you should choose should ultimately correspond to your goal: is it to keep your ancestral home? Or do you seek quick relief from financial hardship without thinking of paying off in the future? Whichever you choose, a foreclosure attorney can help you in filing your petition and preparing the needed paperwork. 

Do not waste your time worrying about what happens when you lose a property. Act now by calling WantAFreshStart, LLC and let our bankruptcy lawyers worry about how you can achieve what you envision.