Chapter 13 and Foreclosure
As the real estate prices continue to plummet, foreclosure numbers are hitting record levels. Many Americans having financial difficulties are wondering if filing bankruptcy can be the secret weapon they need to stop foreclosure on their family home. A common question being asked is, Will filing bankruptcy stop foreclosure? The short answer to that is, technically, yes. When a personal bankruptcy is filed with the court, the automatic stay is put into effect. The automatic stay ceases all contact with the creditors, including collection attempts, wage garnishments and foreclosure. If the debtor decides to file Chapter 7, the lender can file a motion for relief of stay with the bankruptcy court and restart the foreclosure process. That’s why Chapter 13 bankruptcy is king when it comes to stopping a foreclosure.
In a Chapter 13 bankruptcy, a foreclosure can be stopped permanently as long as the debtor can come up with a reasonable repayment plan to keep the property. To come up with a workable plan, the debtor must prove that they can afford to maintain their current mortgage payments along with an additional amount to get caught up on the arrears over the next 3 to 5 years. Next, the Chapter 13 payment plan has to be approved by the bankruptcy court. It seems like some big hoops to jump through, but many times it’s easier than you think when eliminating a portion or all of the unsecured debt through the Chapter 13 bankruptcy. When the value of the property has dropped it is also possible to eliminate second and third trust deeds in the Chapter 13 plan. This is known as lien stripping and can be a huge benefit in today’s decreasing real estate market.
Bankruptcy is probably the most powerful foreclosure tool in the US today. And in this current economic recession, it’s not only a question of whether a bankruptcy filing can stop foreclosure, but what else will bankruptcy do for me.
The decision to file for bankruptcy is like a fork in the road, one person can choose the path that leads to better financial decisions and a prosperous future or they can bury their head in the sand and not do anything to protect their financial future. Fill out the FREE NO OBLIGATION CONSULTATION form to speak with a bankruptcy attorney and take the first step on the road to financial success.