Foreclosure and bankruptcy are intimidating words, especially for borrowers struggling with unmanageable debt. While both actions are related to financial difficulty, mortgage foreclosure and bankruptcy protection actually describe two very different legal processes. Understanding the distinction will help ensure you achieve the best possible outcome for your debt issues.

The Difference Between Bankruptcy & Foreclosure

What Is Foreclosure?

When homeowners are unable to make mortgage payments, the lender may have no option but to seize the property. These legal actions are initiated by the lender, after which the bank takes ownership of the house and the owner has to leave. Foreclosure may eliminate the amount owed, allowing the borrower to essentially walk away. However, if you owed more than the house was worth you could be held responsible for the difference between the balance on your mortgage and the final selling price of the property.

Understanding Bankruptcy

Bankruptcy is a legal process that gives buyers the ability to discharge unsecured debt and catch up on missed mortgage payments. Both Chapter 7 and Chapter 13 bankruptcies include an automatic stay, which puts an immediate stop to any collection activity, including foreclosure. However, this protection is only temporary if you file for a Chapter 7 liquidation. Once your debts are discharged, your mortgage lender may continue the foreclosure process. Chapter 13, on the other hand, is designed to help homeowners with sufficient income catch up on past due amounts through a court-managed payment plan. As long as you make your bankruptcy payments in a timely manner, the bank will be unable to foreclose.
 

If you’re struggling with debts you can’t repay, the Arnold Law Offices can help achieve the relief you need. From their offices in Pell City, AL and Talladega, AL they offer effective legal counsel and guidance to struggling borrowers throughout the area. Visit their website to learn more about the benefits of bankruptcy, follow their Facebook for updates and tips, or call (205) 338- 6565 or (256) 268-8677 to schedule your consultation today.