For many homeowners, a mortgage loan accounts for their largest monthly expense. Unfortunately, it’s common to fall behind on payments when having trouble with debt, and as a result, the bank may initiate foreclosure proceedings. If you’re at risk of losing your home, it’s important to explore all your options, including filing Chapter 7 bankruptcy. Although this won’t always save a home from foreclosure, there are several ways it can help you get back on your feet. The following information explains what you need to know to make an informed decision on the action you take next.
Understanding How Chapter 7 Bankruptcy Works With Foreclosure
Automatic Stay & Creditor Collections
As soon as you file bankruptcy, you’re granted an automatic stay, which prevents creditors from continuing any collection efforts. In turn, the bank must stop foreclosure proceedings. If you’re just a few months behind on your mortgage, this can give you enough time to regain control of your finances and get caught up on payments so you can keep your home.
A Chapter 7 bankruptcy is designed to completely discharge unsecured debts. However, a mortgage loan is a secured debt. This means that while the bankruptcy will eliminate the remainder of your financial obligation, it won’t get rid of the lien. If you fail to become current on the loan, the foreclosure can continue once your discharge is issued.
Other Benefits of Chapter 7 Bankruptcy
When you’re given an automatic stay, you may also use this time to negotiate a loan modification with your lender. Additionally, since Chapter 7 will wipe out your other debts, you can put the money you’re saving toward your mortgage payments. If you decide you don’t want to stay in the home, your filing will allow you a few extra months to save up and find another place to live.
What to Do After Filing
Whether your home is foreclosed on or not, you still have financial responsibilities you must maintain to avoid legal and tax problems. Until the lender takes possession of the property, you’ll need to continue paying property taxes and homeowner’s association fees. It’s also advisable to keep your homeowners insurance coverage. If someone gets injured on the property while the deed is in your name, you could be held liable.
Is Chapter 13 Bankruptcy a Better Alternative?
As an alternative, Chapter 13 bankruptcy restructures your debt into an affordable repayment plan that lasts three to five years. This provides you the opportunity to keep your home and catch up on payments as well as strip off an unsecured second mortgage.
If you’re facing the possibility of foreclosure, reach out to The Gil Law Firm to discuss your options. They’ll help determine if Chapter 7 bankruptcy is right for your situation or if Chapter 13 is more suitable. For nearly two decades, they’ve been guiding Dothan, AL, residents through the complex bankruptcy process to successfully achieve debt relief and future financial freedom. Call (334) 673-0100 to arrange a consultation or visit them online to learn more about their services.