Bankruptcy & Foreclosure
Chapter 13 Personal Bankruptcy May Prevent Home Foreclosure
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Are you wondering what steps you can take to keep yourself and your family in your home? Have monthly mortgage payments become too great a financial burden to bear? Has your bank or lender already threatened you with mortgage foreclosure?
If so, you may be interested in learning more about the connection between Chapter 13 bankruptcy and mortgage foreclosure. Below you'll find some basic information about mortgage foreclosure, Chapter 13 bankruptcy, Chapter 7 bankruptcy and the relationship among them.
What is mortgage foreclosure?
Simply put, mortgage foreclosure is the repossession of a house. In many cases, when a borrower fails to make payments according to the terms of the mortgage agreement, the lender (often a bank) can take steps to reclaim (or "foreclose on") the house.
For most families, foreclosure is a traumatic and stressful process—the loss of the family home can be devastating, especially if the family is already financially strapped.
Although the laws governing foreclosure are different in each state, the typical foreclosure process follows this timeline:
- After one missed payment, the lender will contact the borrower, usually by mail or phone, to notify the borrow of the late payment.
- After three missed payments, the lender will send notice that the property is to be foreclosed on. The borrower has 30 days to pay the past-due balance before action is taken.
- If payment has not been made after 30 days, the lender's attorney is notified, and the home goes into foreclosure. Usually a sheriff or other government official will deliver the foreclosure notice.
- Once in foreclosure, the home is sold or auctioned off to pay back the lender.
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Why are foreclosures on the rise?
These days, mortgage foreclosure appears over and over again in major news headlines. As news of bank failures, stock market fluctuations and the government bailout clutter the newspapers and airwaves, many analysts are pointing to the housing market as the center of the world's current economic woes.
Basically, what happened was this:
- Loose, available credit and lax lending policies led many borrowers to take out serious (and often unaffordable) loans, often for houses.
- A strong housing market meant that home prices rose steadily for many years. During this time, many homeowners borrowed against their homes, which had increased in value. Others bought homes for the first time, assuming they would be able to sell their houses at a profit.
- Lenders devised credit "innovations" that allowed borrowers with less-than-stellar credit and relatively low incomes to take out sizable loans, often for the purpose of buying a house, a practice known as sub-prime lending.
- Like all bubbles, the housing bubble burst and home prices plummeted. Many people found that they were stuck with mortgages they couldn't afford, and that they owed more than their homes were worth.
- Now, as many Americans struggle to make monthly mortgage payments, more and more are finding they cannot. In return, lenders are foreclosing, seizing properties in lieu of payment.
Part of the reason the foreclosure crisis is so serious right now is that investors of all kinds bought into the real estate boom, which means that investors of all kinds are now facing serious monetary losses.
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How Can Chapter 13 bankruptcy Halt Foreclosure Proceedings?
Many people opt to file for Chapter 13 bankruptcy specifically because it can stop foreclosure proceedings. But bankruptcy isn't a cure-all, and requires good planning and adherence to specific procedures. Generally, it is important for homeowners considering bankruptcy to:
- File the bankruptcy petition before the mortgage company forecloses. Some property owners lose valuable protections by waiting too long to act.
- Make sure it's possible to keep up payments under a Chapter 13 bankruptcy repayment plan. Chapter 13 bankruptcy allows many debtors to save property by preventing collection action while the debtor makes payments over time.
- Stay current with the repayment plan. Missing past-due or current payments while under the protection of the court may open the door to collection action. The lender may request that the automatic stay be lifted—if it is, foreclosure may go forward as usual.
Generally speaking, Chapter 13 offers petitioners the breathing room they need to catch up on late payments without constant hassles from creditors. If you think filing for Chapter 13 bankruptcy may help you save your home from foreclosure, speak with a bankruptcy lawyer practicing in your area.
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What Effect Does a Chapter 7 Bankruptcy Have on a Mortgage Foreclosure?
Because Chapter 7 cases tend to move more quickly than Chapter 13 cases, the automatic stay in Chapter 7 bankruptcy doesn't provide the kind of long-term protection that is sometimes possible under Chapter 13. For those who know they aren't going to be able to catch up past-due mortgage payments, Chapter 7 bankruptcy may offer the time you need to make other housing arrangements, and to walk away without mortgage debt.
Deciding whether Chapter 7 or Chapter 13 protection makes the most sense for your financial situation is one of the most important parts of filing for bankruptcy. A bankruptcy attorney can help you do this, and Clear Bankruptcy can put you in touch with one practicing in your area.
All you have to do to speak with a bankruptcy attorney about your finances and your options for saving your home is fill out our free bankruptcy evaluation form or call us at 877-833-2410 today.