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Chapter 13 Bankruptcy and Foreclosure Are Made for Each Other

The foreclosure rate in the US is currently at a lull, but many experts are predicting it might be the calm before the storm. Coming up to 2010, the foreclosure rate in America was setting records every month until the Robo signing scandal broke. A bankruptcy attorney figured out that mortgage lenders were not doing diligence when foreclosing on property. They basically were just rubber stamping all the foreclosures and not doing any title research on who actually held the paper. Although, they might’ve been servicing the loan, the property note might’ve been bundled and sold many times over. So the million dollar question was, who really owns the property? When these lenders started foreclosing on properties and attorneys for the owners started pushing back, they realized they better get their ducks in a row.

Now, a foreclosure takes a lender close to a year, where before they were doing it in 4 to 6 months. Another factor involved dropping the rate was the overabundance of real estate stock on the market. Let’s face it, the housing market is in the tank and now is not a good time to sell a house unless you are willing to liquidate it at a low price. When someone’s at the end of their rope and a lender is threatening foreclosure they have some options. One thing to consider is filing Chapter 13 bankruptcy as a way out. As long as the person is employed and can afford continuing making the payments, Chapter 13 bankruptcy will stop foreclosure. Technically, both chapters of personal bankruptcy, Chapter 7 and Chapter 13 will stop foreclosure because of the automatic stay. At the time of filing, the automatic stays put in place stopping all collection and legal activity against the debtor. The difference between Chapter 7 bankruptcy and Chapter 13 is Chapter 7 has no repayment plan. Because of this, a Chapter 7 bankruptcy is better suited for wiping out unsecured debts. When filing Chapter 7 it will stop foreclosure, but only temporarily, the lender will usually immediately file a relief of stay allowing them to proceed with the foreclosure.

That’s why go hand-in-hand. In a Chapter 13 bankruptcy, the debtor and their bankruptcy attorney are required to submit a feasible repayment plan that will last 3 to 5 years to the bankruptcy court. Since debts are paid by priority, with secured debts getting paid first and unsecured getting whatever’s left over, a mortgage would be paid by priority. Another benefit is being able to strip liens on an upside down property. Many people back in the real estate boom took out seconds and thirds on their property only to have the property value decrease beneath the value of the first trust deed. Because the second and third are no longer secured by any property value, the bankruptcy attorney can ask the court to make these debts unsecured and strip the liens. This will allow the debtor to include them in their bankruptcy discharge and only be responsible for the first trust deed.

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