Millions of homeowners across the nation are staring foreclosure in the face and wondering if anything can be done. According to the most recent government figures, there will be more than 1.7 million foreclosures in the next twelve months. Will bankruptcy save your home from foreclosure?
"Do you want it to?"
If you've already "thrown in the towel" and decided you don't want to keep your home, then bankruptcy may not be the answer for you. If you've lost your job and can't continue to make any payment, then bankruptcy is not going to save your home from foreclosure.
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On the other hand, if you are willing to put up a fight and do the things necessary to keep the family home, then bankruptcy may work for you. If you still have ongoing sources of income, but the weight of all your debts has created this burden, then bankruptcy may be just what you need to keep your home.
Here's the requisite disclosure, I'm not an attorney and am not giving legal advice. You should consult with a qualified bankruptcy attorney and get all your options spelled out. When you file bankruptcy all of your creditors are notified and are required to cease all debt collection efforts. This in and of itself can be a tremendous relief and give you a chance to get your thoughts and strategies in order.
For the average individual, there are two options in bankruptcy: Chapter 7 or Chapter 13.
Chapter 7 is a liquidation of all assets (certain personal assets are exempt) and won't prevent foreclosure. Because your home loan is secured by a mortgage or deed of trust, your lender is considered a "secured creditor" and is exempt because they are entitled to the asset in the event you default. If eliminating all your non-secured debt puts you in a position to continue to make your house payments, you and your bankruptcy attorney may be able to work out a "deal" with your lender to make up the back payments and keep your home.
Chapter 13 or "wage earner plan" is generally a better option if you have an ongoing source of income but are overwhelmed by the total of the payments as they are today. The bankruptcy trustee will create an income based repayment plan and you will make one payment to the trustee who will distribute the money according to the plan. The trustee may even require a "strip down" of your home equity line of credit to the extent it exceeds the value of your home. Bankruptcy is a very personal decision and what might have been right for your friend or neighbor may not be right for you.
If you're unsure if bankruptcy, either Chapter 7 or Chapter 13 is right for you, most local BAR associations have a legal referral service, where you can get a low cost initial interview with a bankruptcy specialist who can help you decide.
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