Is Foreclosure a Good Reason for Filing Chapter 7 Bankruptcy?

Foreclosure is not a good reason for filing chapter 7 bankruptcy. In fact, it’s a terrible reason and won’t help individuals save their homes. Although filing chapter 7 bankruptcy does involve receiving an automatic stay—which prohibits creditors from pursuing debt collection activities—it doesn’t go far enough. Usually, the automatic stay stops creditors from filing or continuing lawsuits and wage garnishments, but not foreclosures. However, the U.S. Bankruptcy Court does off another option for individuals trying to save their homes.

Filing Chapter 7 Is a Good Choice for People Current on Their Mortgage and With Debt

The purpose of filing chapter 7 bankruptcy is to give people with very little income to expunge all their unsecured debts. This means they don’t have to repay creditors. The debts are typically medical bills, credit cards and loans not secured by collateral. Secured debts such as mortgages are usually not affected as long as people are current in their payments.

Chapter 13 Provides Individuals with a Stronger Automatic Stay

Chapter 13 bankruptcy remains one for the best way to avoid home foreclosure and prevent the loss of a home from a mortgage foreclosure, according to Molleur Law Office. In other words, no matter what stage of the foreclosure people are in chapter 13 stops the process. Even if people have been foreclosed on and their house is up for action, once the chapter 13 is filed the house is taken off the market. However, the automatic stay can’t help once the home has been sold. The automatic stay continues until the chapter 13 is successfully completed or dismissed.

Chapter 13 Is a Big Commitment

Unlike filing chapter 7 which can be completed in three to six months, chapter 13 takes 36 to 60 months (three to five years). The U.S. Bankruptcy Court approves a repayment plan specific to people’s financial responsibilities. Then they make monthly payments to their bankruptcy trustee and mortgage payments to their lender. In addition, individuals must have a stable income. The U.S. Bankruptcy Court requires people planning to file chapter 13 to take a means test. The test compares people’s incomes to their state’s median income. If they have money left over, also called disposable income, they qualify for chapter 13 bankruptcy.

Seek Legal Counsel about Stopping Foreclosure

Bankruptcy attorneys will help people facing foreclosure. They can immediately file the chapter 13 bankruptcy papers to stop lenders from taking homes.