Chapter 7 and Chapter 13 bankruptcy can help homeowners prevent foreclosure
In a paper titled “Bankruptcy During Foreclosure: Home Preservation Through Chapters 7 and 13,” researchers from the University of North Carolina have quantified what experienced bankruptcy attorneys like Paul Y. Lee already know: filing for bankruptcy is an effective foreclosure defense for many homeowners.
Findings of the Study
The paper covered data collected on 4,280 lower-income homeowners who had fallen over 90 days behind in payments on 30-year mortgages. The mortgages were held by a wide variety of lenders, but in all cases homeowners reduced the likelihood of a foreclosure auction by 70 percent by filing for bankruptcy. The effectiveness of bankruptcy in preventing foreclosure was 5 times greater when Chapter 13 rather than Chapter 7 was filed. However, a surprisingly small percentage of homeowners in the study actually utilized the protections offered by bankruptcy. Whether this was due to an ignorance of their rights and options or to a stigma associated with bankruptcy is not known.
Using Chapter 7 to Prevent Foreclosure
Filing for Chapter 7 bankruptcy can temporarily stop a foreclosure and relieve you of other debts so that you can redirect cash towards your mortgage. It can help people who have lots of unsecured credit card debts and have fallen just a few months behind on their mortgages, but you have to act quickly and get current on your home payments, or else the lender can file a motion for relief and start the process of selling your home.
Using Chapter 13 to Prevent Foreclosure
Chapter 13 bankruptcy is usually the better choice for homeowners who are facing the threat of foreclosure. With Chapter 13 bankruptcy, a judge creates a 3 to 5 year payment plan for you, allowing you to catch up on back payments slowly while continuing to make your regular monthly mortgage payments. As long as you keep up with your Chapter 13 payments, this effectively takes foreclosure off the table for the duration of the Chapter 13 plan.
File Now and Get an Automatic Stay
No matter which type of bankruptcy you file for, you will get an automatic stay on any foreclosure auction or sale that may be in the works. The lender must wait until your bankruptcy is complete to proceed with the sale, or else try to file a motion of relief against you to restart the process. Often in bankruptcy cases winning just a little bit of time to catch up with your debts can be incredibly helpful, so you won’t want to miss your chance to get an automatic stay plus the protections of either Chapter 7 or 13. Contact an experienced bankruptcy attorney today to find out which type of bankruptcy is right for you and get the process started.
