The average people will probably think that filing for bankruptcy is a solid way to avoid foreclosure.
Bankruptcy is a legal representation of a person's inability to pay and settle his debts. This may be due to a couple of personal reasons like unforeseen medical expenses, divorce, death in the family, loss of job and others.
Foreclosure on the other hand is when the mortgagor is unable to make the necessary payments at the time set by the lender. This gives the lender the right to assume ownership of the property and recover some of their losses through the money earned when the property has been sold or auctioned off.
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Basically, bankruptcy does not stop foreclosure from happening. Filing for bankruptcy does not stop the lender from repossessing your property. It only allows a slowdown of the foreclosure process. This gives you time to pay your mortgage loan, making it easier for you to pay the lender eventually.
Here is how filing for bankruptcy can help slow down the process. The lender is required to suspend foreclosure action when the mortgagor files for bankruptcy. This will allow some way for the mortgagor to raise money and pay his loan. And because this action will allow discharge of some unsecured debts, the mortgagor may priorities his mortgage payments instead of paying his other debts. Chapter 13, a court ordered payment plan, states allowance for the mortgagor to pay the loan and catch up with the amount over time.
However, not everyone can actually qualify for filing a bankruptcy case. And even if you do qualify, you must take into consideration the legal costs and fees involved in this process. The amount you pay these legal fees may certainly be used to pay off your mortgage installments.
The possible drawbacks of this option would raise some wide concerns over the mortgagor's recent credit rating. Filing this would have a great effect in one's credit history and would probably lessen the likelihood of qualifications for credit in the future.
There are also the risks of facing an unscrupulous bankruptcy attorney who will not strive to help foreclosure victims as best they could. There are several cases of homeowners who spent their hard-earned money in order to pay for the process of filing for bankruptcy and the lawyer simply did nothing with it. Eventually their properties have been foreclosed just the same. Other attorneys give advice to clients so that they continually switch from a Chapter 13 to a Chapter 7 with the hopes of having their clients pay more in legal fees whenever they file a new status. If you really would like to take this option, then it is important that you be careful with the lawyers you are dealing with. Look for attorneys who will act at your best interest and not scam you for your money.
Remember that filing for bankruptcy will not change your situation. Looking for other options first with your lender may help you more than immediately settling for a new status. It will be best that you consult with friends and family and research further before taking this step.
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