Many people who are considering bankruptcy may also be in the process of losing their home due to foreclosure. In fact, oftentimes, these two situations are closely related. Yet, depending upon your circumstances, you could actually be able to save your home from foreclosure – or at least delay the process – by filing for bankruptcy. This could be tricky, however, and it is highly advised that you seek the advice of an attorney before moving forward.
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How the Procedure Works
First, it is important to understand the primary types of bankruptcy and how each can affect your debt repayment obligations. The two types of bankruptcy that are filed by individuals include Chapter 7 and Chapter 13.
Chapter 7 Bankruptcy
Filing a Chapter 7 bankruptcy will completely cancel all of the mortgage debt – including second mortgages and home equity loans – that you owe on. You want to differentiate two things here which is causing some headache to understand for most people. There are two different rights your mortgage company has. One is the right to demand payment for you that is based on your contract (the note) which says you pay to the mortgage company a monthly amount. You don’t have that obligation anymore after filing for bankruptcy. However, you also pledged your home as security to the bank in the case you don’t pay anymore (the mortgage). That’s means you can stop paying if you are willing to surrender (meaning giving it back to your mortgage lender) your home. If you want to keep it, you still need to continue paying on it. Chapter 7 bankruptcy will also usually eliminate your unsecured debt such as credit card balances.
By going with a Chapter 7 bankruptcy proceeding, you can keep your home, car and any other personal property you own. However, this filing may very well postpone foreclosure, giving you some additional time to find alternate living arrangements if you choose to surrender your home.
In many cases, the procedure for Chapter 7 bankruptcy takes around four months. You can remain in your home until the mortgage company forecloses on your home. Foreclosure will change title to your home, meaning someone else owns the home. In some instances, the procedure may take longer.
Chapter 13 Bankruptcy
If you opt for – and are eligible for – Chapter 13 bankruptcy, you may have a chance to save your home from foreclosure. This is especially true if you are able to make up missed mortgage payments in the future.
This bankruptcy option allows you to essentially restructure your existing debts. Therefore, with a Chapter 13, you may be able to make up for missed mortgage payments over a certain period of time. This time frame is in the St. Louis area (Eastern District of Missouri) three years. In the St. Louis Metro East area (Southern District of Illinois), you can stretch out the arrearage over up to 5 years.
Proceed With Caution
Many people will do whatever it takes in order to save their home. If, however, for some reason you are unable to keep up with the mortgage payments during the repayment time frame, your mortgage lender could ask the court to lift your bankruptcy protection and subsequently start the procedure of foreclosure again. Therefore, it is important to be sure that you will be able to afford the mortgage payments when putting together your debt repayment plan.
Before moving forward with any option, it is a good idea to speak with a qualified attorney who specializes in the area of bankruptcy. This way, you will be more assured of getting the correct advice that will work in your specific situation as well as that is in compliance with the laws in your particular state of residence. Our attorneys in the St. Louis and Metro East area offer a free consultation.