Filing Bankruptcy to Stop Foreclosure
Before the consumer files bankruptcy he/she must prepare the following:
• A lawyer
• Income tax statement
• Proof of current income
What to look for in a lawyer
• One that specializes in bankruptcy and alternatives to bankruptcy.
• Offer free consultations.
• Flexible. An attorney that is willing to look into what the consumer can afford.
Chapter 13
If the consumer has what it takes to make up payments in the future (bankruptcy is a long and tedious process) then he/she can file Chapter 13. The consumer must make sure that he/she can sustain these payments for at least three years.
In Chapter 13 the consumer would also have to make monthly mortgage payment along with part of the arrearage or else the lender would inform the court about that violation and ask for the bankruptcy protection to be lifted, and the foreclosure issue would restart.
What is arrearage?
It is the amount that is due and unpaid.
If the consumer has taken out a second mortgage on the house, Chapter 13 can eliminate that mortgage that is if the second mortgage is not secured by the value of the house. The reason for this is if the first mortgage depends on the entire value of the house, and if it has dropped in value, the consumer may not have any equity left with which to secure the following mortgages. If that is the case the court may consider the second mortgage as unsecured debt (which in a bankruptcy process takes a backseat to secured debts).
Chapter 7
Can completely cancel mortgage debt, second mortgages, and home equity loans.
It can also clear out all unsecured debt.
The consumer may not keep the house under Chapter 7 because it only postpones the foreclosure. What Chapter 7 buys the consumer is time to look for other living arrangements as the bankruptcy process can take two to four months to complete.
What do the numbers say about bankruptcy and foreclosure?
Ninety six percent of consumers (homeowners) lose their home to foreclosure after they have filed for bankruptcy because they cannot keep up with the payment. That is according to The American Bar Association. The consumers then end up having both bankruptcy and home foreclosure stamped on the credit report.
Check out this resource for more information about bankruptcy and foreclosures: