Bankruptcy vs Foreclosure
Money is tight, bills are piling up, and you’re not sure what to do. No matter how hard you try, it just is not enough to makes ends meet. You start getting “Notice of Default” letters in the mail and they won’t stop calling you. Your home is about to go into foreclosure. Your mind immediately starts racing to thoughts of filing Bankruptcy, the lender for your home can’t take your home way if that happens……
Not entirely true!!
There are 2 different types of Bankruptcy you can file, Chapter 7 and Chapter 13. They are very different from each other and how they help, so please do your research before making a choice. Bankruptcy is usually filed after 2-3 payments have been missed on the mortgage of the home. Once the bankruptcy is filed, the process of foreclosure will be postponed automatically until the bankruptcy is finalized. This process will usually take 3-4 months.
You can file Chapter 7 Bankruptcy or “Automatic stay,” but this is only temporary. The court puts a temporary hold on your creditors, including your lender. Although, not all creditors will be put on hold, only unsecured ones, like credit cards. Just know that debt, taxes, child support, alimony and student loans are not included the Chapter 7, nor can it give you relief from secured creditors including your lender. Chapter 7 is only effective for as long as the court wants it to be, they can change it at any time by granting the lenders motion for “relief from automatic stay.” At that point, the process will proceed with the foreclosure.
The other option is filing Chapter 13 Bankruptcy. This is where you can sit down with creditors and work out a payment schedule (at a lower rate) and pay them back over this planned time period. After the agreement has been made, the creditors (including your lender) must abide by this agreement. Doing this can stop foreclosure on your home, but only if you are making the payments as planned.
So yes, in a way, filing bankruptcy can stop foreclosure on your home. Just know that not everyone qualifies for Chapter 13 Bankruptcy. The qualifications have been set higher, court fees must be paid, and you will have to hire an attorney (who will want to be paid as well).
You will have to weigh your options on both chapters and decide which would be better for your situation. Bankruptcy will also damage your credit, but it could also be a good thing when you are trying to rebuild your credit. There is a good possibility that most mortgage companies will not consider you for a new mortgage, but your credit will start over and you can build good credit faster. There are negative effects with all of this too, bankruptcy does not always keep you from losing your home. Just make sure you talk to an attorney to find out which is your best option.