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Foreclosure and Bankruptcy
Despite economic improvements, many Americans continue to face a financial crisis. Costs of living have consistently increased, making it difficult for many homeowners to pay for their basic necessities such as medical care, housing, and the cost of food.
Unfortunately, if you have a mortgage for your home and you fail to meet the contractual obligations of the mortgage agreement, the lender has the legal right to foreclose on your property, allowing them to repossess the property and sell it.
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Before foreclosure you may receive several calls or notices, but if you do not make payments your lender can initiate the foreclosure process by sending you a "Notice of Default." In certain states a process server may serve you a "Lis Pendens." After you receive either of these notices the foreclosure process has officially started.
Foreclosure and Chapter 7 Bankruptcy
Chapter 7 bankruptcy allows certain qualifying debtors to discharge certain unsecured assets. Chapter 7 bankruptcy does not eliminate the mortgage debt, but it does initiate an automatic stay, temporarily blocking a home foreclosure. Under Chapter 7 bankruptcy, however, you can expect the lender to file a motion to lift the stay, which will allow them to proceed with the sale.
Although filing Chapter 13 bankruptcy may a better option to save your home, Chapter 7 bankruptcy can eliminate certain unsecured debts, such as unsecured personal loans, medical bills, and credit card debt, freeing up more income for a debtor to pay their home mortgage.
Unfortunately many debtors do not qualify for Chapter 7 bankruptcy because their average gross income is too high or they have too much disposable income to repay their debts.
If you are considering filing Chapter 7 bankruptcy it may a good idea to discuss your case with a bankruptcy lawyer and find out if you can save your home from foreclosure.
Foreclosure and Chapter 13 bankruptcy
Like Chapter 7 bankruptcy, Filing Chapter 13 bankruptcy will not eliminate any mortgage debt. It does, however, allow many debtors to save their house. Chapter 13 bankruptcy will initiate an automatic stay, forcing the lender to stop their foreclosure actions.
It also allows the debtor to create a three or five year Chapter 13 bankruptcy debt repayment plan, which includes a plan to repay mortgage payments which are in arrears. Homeowners must, however, continue to pay their ongoing mortgage payments. Failing to make monthly mortgage payments can allow the lender to reinitiate the foreclosure process.
If you have a second or third mortgage payment these mortgages may not be secured by your home. In this case the Chapter 13 bankruptcy may allow the court to strip off these mortgages and consider them unsecured debt, which may or may not be repaid in a Chapter 13 bankruptcy repayment plan.
Chapter 7 bankruptcy will not permanently stop foreclosure and may not be the best option to safe your home. It will, however, provide a month or two of breathing room where you may be able to get your financial crisis resolved. The main benefit of Chapter 7 is the potential discharge of other unsecured debts.
Chapter 13 bankruptcy is generally a better option to stop foreclosure and save a house because it allows the debtor to create a Chapter 13 debt repayment plan. Unfortunately, not everyone will qualify for a Chapter 13, and if they do qualify they must follow the requirements of their debt repayment plan or risk losing their house.