Can Filing Bankruptcy Stop a Lender From Foreclosing on Your Home?

There are countless commercials on television about it. By filing for bankruptcy, you can help put your life back on track and even save your house in the process. Is there truth to this assertion? The answer may come as an unexpected surprise.

First, let’s look at Chapter 13 bankruptcies. This is a type of bankruptcy that can be filed by either an individual or a business. Instead of canceling out debts, as many advertisers claim, it instead allows you to propose a repayment plan to your creditors. This repayment plan, if approved, is often at a much lower overall rate than you would be paying if you had not filed bankruptcy. In relation to saving your home from foreclosure, you can propose new mortgage terms with your lender and, if accepted, may very well be able to save your home in this way.

In some instances, filing a Chapter 7 bankruptcy is also a viable option. Chapter 7 bankruptcies are only open to individuals and offer no repayment plan. In a way instead, though, it does allow you to cancel out existing debts. This process may not be as simplistic as it seems, though. Some debts like unsecured credit card balances can be canceled out, while others really can’t be. A prime example of this is the lien included with your mortgage property. It cannot be erased by simply filing bankruptcy, since it is considered collateral for the mortgage loan you’ve borrowed. You might be able to exempt all or some of the remaining mortgage on your home via a homestead exemption that is available in many states. To determine if this is a viable option for your situation, consult with an attorney.

Unfortunately, neither bankruptcy option is one hundred percent perfect. There is no help provided in either option if you begin missing payments on your home again after filing bankruptcy. This will result in the loss of your home and a decrease in the strength of your credit score at the same time, so it might put you in a worse situation than you were in prior to filing.

Overall, it is important to consider your options carefully before filing any kind of bankruptcy in an effort to save your home from foreclosure. A knowledgeable bankruptcy attorney will be able to better illustrate your options and, ultimately, determine if filing a bankruptcy is an appropriate choice for your specific situation.

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