Ever since the real estate market meltdown in 2008, many Americans have been facing foreclosure with no remedies. Prior to 2008, lenders were loaning money based on stated income for houses that individuals could not afford. It was no surprise when all of this came crashing down. Now, because of this mess that was created by Washington, the economy is still lagging making it harder for Americans to make ends meet. Even those that could afford their home in the past are now in danger of foreclosure. The government came up with loan modification programs to help out healing homeowners that were struggling to make their mortgage payments. The only problem with the program is it didn’t work. Only 5% of those that applied were eligible for loan modifications. Because of this, large groups of people are now facing foreclosure on their family home with no way out.
There is a light at the end of the tunnel. With all the bad news there is some good news by filing bankruptcy. Personal bankruptcy comes in two basic chapters, Chapter 7 and Chapter 13. Filing Chapter 7 bankruptcy is best used for individuals with large amounts of unsecured debt and are not worried about keeping all their property. Although, this form of personal bankruptcy does allow individuals generous exemption laws that protect most of one’s property. One huge benefit of Chapter 7 is it will stop foreclosure even if it might only be temporary. When filing bankruptcy, the automatic stay is put in place stopping all collection efforts by the creditors. In fact, the automatic stay does much more including, stopping foreclosure, lawsuits, judgments and wage garnishments. Unless the creditor can get the Bankruptcy court to lift the automatic stay, they will have to wait until after the bankruptcy discharge to continue with foreclosure. In some situations, an individual can file Chapter 7 to wipe out their unsecured debt, freeing up enough extra funds to be able to afford the family home.
At the other end of the spectrum is Chapter 13 bankruptcy. Filing Chapter 13 is typically used for individuals that want to protect their home from foreclosure. Just like Chapter 7, a Chapter 13 bankruptcy shares the power of the automatic stay and when filed it will stop foreclosure. The difference with a Chapter 13 is, the debtor and are bankruptcy attorney are required to come up with a feasible repayment plan that will last 3 to 5 years. This also means the automatic stay will be in place for 3 to 5 years and until the bankruptcy discharge. This once again shows . Because of this, the debtor and their bankruptcy attorney will have the power of negotiation with the creditor. Most people filing bankruptcy under Chapter 13 rarely lose their property unless they choose to surrender it. Before it gets too late, an individual in financial trouble should consult a bankruptcy attorney to let them help in the decision to file.