One of the most common reasons why people consider filing for bankruptcy is that they are struggling to keep up with their mortgage payments. They come to us and ask, “Can bankruptcy save my home from foreclosure?” So we start with this:
Bankruptcy isn’t a cure-all.
Declaring bankruptcy will not permanently stop foreclosure proceedings, and your home loan debt will not be forgiven, even if you declare Chapter 7 bankruptcy. Many people believe that all debts are forgiven in bankruptcy, but that is a myth. Debts that are secured by property, including your mortgage, which is secured by your house, cannot be discharged, even in bankruptcy. Bankruptcy can’t save your home, in and of itself. However, it can be a useful tool to help you fight foreclosure, opening up new options, or simply buying you time.
Bankruptcy can be a valuable tool to help save your home.
Even though your home loan and mortgage debt cannot be discharged, bankruptcy could be the tool you need to get control of your finances and save your home. Here are the ways bankruptcy can help you fight foreclosure:
- When you file for Chapter 7 bankruptcy, all debts are placed on hold while the bankruptcy process is carried out. This also puts a stop to foreclosure proceedings—a temporary stop. Once the bankruptcy process is complete, secured debt can be pursued again, and the bank could still foreclose on your home. Still, many homeowners have found that this temporary freeze gives them the time they need to fight the foreclosure. At the very least, it will allow you to stay in your home for a few more months while you plan your next step.
- Chapter 7 bankruptcy will free you of unsecured debt, including common problem debts like medical bills and credit card balances. Homeowners facing foreclosure are often able to catch up on their mortgage payments and keep up with them, once they are freed from other kinds of debt.
- Chapter 13 bankruptcy sets up a payment plan that will allow you to pay off your debts over the course of three to five years. This form of bankruptcy can also eliminate second and third mortgages, and home equity loans, making your remaining payments more manageable.
There is no way to have mortgage debt discharged completely while keeping your home, even if you declare bankruptcy. Still, bankruptcy may be the tool you need to save your home from foreclosure. To find out whether Chapter 7 or Chapter 13 can help you keep your home, discuss the details of your unique financial situation with us today.