Foreclosure is a financial worst-case scenario for most homeowners, but it may sometimes be unavoidable. As difficult as it might be, in some situations, surrendering your home and filing for Chapter 7 bankruptcy protection may be the only way to reclaim your life from debt. If foreclosure is your best option, when you file your petition will help maximize the benefits of your bankruptcy.
When Should You File for Bankruptcy When Facing Foreclosure?
Saving You From Future Issues
For most borrowers, filing for Chapter 7 bankruptcy before the lender forecloses is the better choice. While it may not prevent the foreclosure, a bankruptcy will delay action long enough for you to make other arrangements and save money. More importantly, filing a petition early in the process will prevent your lender from suing you for the remainder of your mortgage loan balance.
Triggering the Automatic Stay
Filing a bankruptcy petition immediately triggers an automatic stay, which puts an immediate stop to any collections activity against you, including repossession and foreclosure. Discharging your bankruptcy can take several months, giving you an opportunity to gather funds for your move.
Preventing a Deficiency Judgment
When lenders sell foreclosed homes at an auction, they usually get much less than the full value of the defaulted loan. Unfortunately, foreclosed borrowers may still be responsible for the difference, known as the deficiency. For instance, if you still owe $150,000 on your home, but the bank is only able to sell it for $125,000, they may sue you for the remaining $25,000. Filing a Chapter 7 bankruptcy before a foreclosure allows you to preemptively discharge your mortgage balance, preventing the lender from taking further action against you.
A Chapter 7 bankruptcy can be a powerful tool, allowing you to eliminate your debts and wipe your financial slate clean. For almost 20 years, the legal team at The Gil Law Firm in Dothan, AL, has helped borrowers throughout Alabama, Florida, and Georgia reclaim their lives from debt. Visit their website to see how they can help, follow their Twitter page for more legal tips, or call (334) 673-0100 to schedule a consultation with a bankruptcy attorney today.