Debt is a major problem for many American families, especially during difficult times such as the COVID-19 pandemic. If you have lost your job, are facing large medical bills, or are struggling to make payments on the debts you owe, you may be concerned about the possibility of foreclosure on your home. Fortunately, bankruptcy may provide your family with some relief by allowing you to discharge or repay certain debts without losing your home.
Automatic Foreclosure Stay During Bankruptcy Proceedings
When you file for bankruptcy, an automatic stay will go into effect preventing creditors from attempting to collect on the debts you owe. This stay applies to mortgage lenders and foreclosure proceedings. If a bank has begun the process of foreclosing on your home, filing for bankruptcy can put a halt to these proceedings while you determine the best steps to take to regain financial security while keeping your home.
Chapter 7 or Chapter 13 Bankruptcy and Your Mortgage
A Chapter 7 bankruptcy is known as a “liquidation bankruptcy,” since all non-exempt assets you own will be sold to make payments to your creditors, and any remaining debts will be discharged. Chapter 7 bankruptcy can help you delay a foreclosure, but if you discharge the amount owed on your mortgage, in many cases the lender can still eventually foreclose on your home. However, if you do not discharge your mortgage debt, and you remain current on your mortgage payments, Chapter 7 bankruptcy may allow you to discharge other debts and give you the financial means to stay in your home.
Chapter 13 bankruptcy often offers a better option for avoiding foreclosure, since it allows you to create a repayment plan in which you will pay off as much of your debts as possible over a three-year or five-year period. Any past-due mortgage payments can be included in this repayment plan, and you can avoid foreclosure by remaining current on your mortgage while making these payments. In some cases, you may also be able to “strip off” second or third mortgages by reclassifying these loans as unsecured debts, and they may be discharged along with other remaining debts once you have completed your repayment plan.
Contact Our Gurnee Foreclosure Defense Lawyers
If you are facing foreclosure, Newland & Newland, LLP can help you understand your legal options for filing for bankruptcy, discharging your debts, and keeping your home. We will make sure you file all of the necessary paperwork to halt foreclosure proceedings, and we can help you negotiate loan modifications that will allow you to make ongoing mortgage payments while paying other debts and expenses. Contact our Waukegan bankruptcy attorneys today at 847-549-0000 to set up your free consultation.
Sources:
When should you use Chapter 13 bankruptcy to stop foreclosure?