Saving Your Home From Foreclosure: Filing For Bankruptcy May Not Be Enough

Posted October 9, 2010 – 5:43 am in: Mortgages
     

The commercials on TV are endless. You can put your life on track and protect your home at the same time by filing bankruptcy. However, is this a factual statement? You may be astounded to hear the truth.

Let’s tackle Chapter 13 bankruptcies first. Either an individual or a company can file this sort of bankruptcy. Rather than canceling out debts, as a lot of advertisers claim, it instead allows you to propose a repayment plan to your creditors. This repayment plan, if approved, is often at a much lower total rate than you would pay if you had not filed bankruptcy. In regards to protecting your house from foreclosure, you can suggest new mortgage terms with your lender and, if approved, you may very well be able to save your home in this way.

You can also opt for a Chapter 7 bankruptcy. Chapter 7 bankruptcies are only open to individuals and provide no repayment plan. In a way the option allows you to cancel out existing debts. Do not assume this is as easy as it appears, though. Some debts like unsecured credit card balances can be canceled out, while others really can’t be. You can see a ready example of this in the lien built-in to property. You can’t just eliminate something that is thought to be collateral for the mortgage loan you’ve borrowed by simply filing bankruptcy. You might be allowed to exempt all or some of the remaining mortgage on your property by means of a homestead exemption that is available in several states. Check with an attorney to determine the amount, if any, your state will permit you to exempt in this way.

Neither bankruptcy option is perfect, unfortunately. If you start missing payments again on your house, for example, neither the Chapter 7 nor the Chapter 13 bankruptcy you filed can help you. This will result in the loss of your house and a decrease in the strength of your credit score at the same time, so it could put you in a worse state of affairs than you were in prior to filing.

In general, it is imperative to think about your options carefully prior to filing any kind of bankruptcy in an attempt to protect your house from foreclosure. A knowledgeable bankruptcy attorney will be able to better illustrate your choices and ultimately determine if filing a bankruptcy is the correct choice for your certain situation.

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categories: bankruptcy,home foreclosures,real estate,finance,mortgage,business