There are two types of consumer bankruptcies: Chapter 7 and Chapter 13. Filing a Chapter 7 bankruptcy to eliminate unsecured debt (with a few exceptions) allows you to re-route payments from monthly credit card bills or payday loans to the most important asset, your home. Filing a Chapter 13 bankruptcy will reorganize your unsecured and secured debts, allowing for a discharge of unsecured debts, in some cases. If a foreclosure proceeding has already begun or a sheriff sale is scheduled, Chapter 13 bankruptcy will also allow you to save your home and pay back the past due amount, interest free.
After the filing of either type of bankruptcy, there are certain protections put into place to save your home. Upon filing, an “automatic stay” is in effect. It prohibits any creditors from taking steps to collect a debt from you, including foreclosure proceedings. While there are different rules for each bankruptcy, both can be useful tools in saving your homestead.
A Chapter 7 bankruptcy allows you to discharge most or all unsecured debt. Although Chapter 7 bankruptcy is also known as liquidation bankruptcy, you can still retain your residence. As long as your home mortgage is current, the mortgage company will almost always allow you to keep your home. There are even instances where you can save your home, even if you are past due on payments. While in Chapter 7 bankruptcy, you do not need to make monthly payments to unsecured creditors. This gives you the time needed to either raise the funds to get back on track or work out a modification agreement with the mortgage company.
If you are past due on your mortgage or your home is in foreclosure, filing for Chapter 13 bankruptcy can help you retain your home. If there is a sheriff sale scheduled to sell your property, you can file Chapter 13 bankruptcy up to the day before the sale and save your home.
Once the bankruptcy is filed, the past due amount on your mortgage will be added into the Chapter 13 plan and can be paid back with no interest. The alternative is a modification of your entire mortgage note, which will ultimately result in a much greater amount of money paid, not only through the life of the loan, but also in the form of a higher monthly note. There is no guarantee the mortgage company will approve the modification. Within five years of a Chapter 13 bankruptcy, however, the past due amount will be paid back interest free, putting you back on track with your mortgage.
In short–filing bankruptcy does not mean you will lose your home. Let the experienced team at the Gouner Law Office help you with bankruptcy information and assistance to both save your home and get a fresh start.