The thought of losing your home to foreclosure: It’s a nightmare that you hope will never come true. But if you’re behind on your mortgage payments and the bank is threatening foreclosure action, you may be looking desperately for a solution that will get things back on track financially.
As you seek to save your home, you may know that Chapter 13 bankruptcy could be a viable option. But what about Chapter 7 bankruptcy, which can discharge significant debts and provide a powerful “fresh start”?
Chapter 13 versus Chapter 7
Many homeowners who read bankruptcy blogs know that a Chapter 13 bankruptcy filing can stop a foreclosure dead in its tracks; it can actually halt the sheriff’s sale of a home, even if the sale is scheduled to happen very soon. However, a Chapter 13 comes at a significant cost: The debtor has to enter into a payment plan that lasts for years.
By contrast, Chapter 7 “liquidation” allows qualified filers to discharge significant financial burdens like credit card debt and medical debt. Though Chapter 7 isn’t filed in emergency foreclosure situations, and it limits the assets that a consumer can protect, it can be used to eradicate debt in a way that lets the filer focus on bills that matter the most: mortgage, utilities, food, transportation and so on.
How does that help me prevent foreclosure?
If you have unsecured debt and you pass the Chapter 7 means test, your bankruptcy could free up much more of your income to pay the mortgage. For example, when you no longer have, say, $900 per month in credit card and personal loan payments, your $1100 house payment will feel a lot more affordable.
The last mortgage crisis showed us that a homeowner can’t logically keep an unaffordable house in the long run. If your monthly income is expected to remain at $4,000, bankruptcy isn’t a magic pill that will somehow enable you to pay off a $500,000 mortgage balance.
Every situation is different
Bankruptcy isn’t the right thing for everyone who has debt. If you’re worried about foreclosure, it is important that you consult an experienced bankruptcy attorney to discuss your options. Usually, the initial consultation is free and confidential.