Can Bankruptcy Provide An Escape Route?

Chapter 13 Bankruptcy can be a powerful tool to stop home foreclosure.  However, that doesn’t necessarily mean it will be right for you and your situation.

Filing for Chapter 13 can effectively stop your foreclosure if filed before the foreclosure sale date.  But it is important to understand that mortgage loans cannot be included and discharged (dismissed) through bankruptcy. You will still be responsible for the loan balance.  Further, Chapter 13 Bankruptcy mandates the payment of all or at least a portion of other outstanding debt you have.  Under the plan a budget is formulated that requires you to make monthly payments to a court appointed bankruptcy trustee for a period of three to five years.

What Chapter 13 Bankruptcy will do is halt the foreclosure process through an automatic stay and allow you a way to keep your home.  Further, it will provide you valuable time to catch up on delinquent mortgage payments, halt collection efforts from creditors, and stop interest from accruing on personal debt.  Bankruptcy will also force your mortgage company to accept a more payment-friendly schedule for you to make ends meet and pay them back over a longer time period.

It is important to understand that if you fall behind on your mortgage payments again post petition (after filing for Chapter 13) you still risk losing your home to foreclosure.  Also consider that adding a bankruptcy to your already damaged credit rating will further impair your ability to borrow in the near future.

Bottom line here is that Foreclosure Bankruptcy can be a good solution for those facing foreclosure in some cases. However, it is not a solution to be taken lightly since there are other repercussions and a lengthy commitment.  It should be considered only as a last line of defense.  It is critical that you contact a bankruptcy attorney if you are considering this option – especially now due to the recent bankruptcy-law reform. 

To learn more about the fundamentals of Bankruptcy go to U.S. Courts website at:

www.uscourts.gov/bankruptcycourts/bankruptcybasics.html