Foreclosure involves the creditor’s repossession and sale of the property, with proceeds going toward the mortgage and legal fees. Most creditors do not start the process until the borrower is at least three months behind on the mortgage, which allows the homeowner and their Bankruptcy Lawyer in Portsmouth VA time to consider alternatives like forbearance, short sale or a deed in lieu.
The Automatic Stay
Homeowners dread foreclosure and bankruptcy, but the latter can actually help in the event of a foreclosure. Once bankruptcy is filed the court issues an order for relief, granting an automatic stay that prohibits creditors from making further collection attempts. If a sale is scheduled it is legally postponed until the bankruptcy case concludes, which can take roughly four months.
How Chapter 13 Can Help
Chapter 13 allows the homeowner to set up a payment plan to catch up on the mortgage. The client will need enough income to follow the payment plan and to pay the current mortgage payments. As long as all required payments are made, one can avoid foreclosure and stay in the home.
How Chapter 7 Can Help
Chapter 7 eliminates all debt secured by the home’s equity, including loans and mortgages. Thanks to changes in the bankruptcy law, Chapter 7 also forgives a homeowner’s tax liability for losses a lender incurs because of the default. However, the forgiveness doesn’t apply to non-mortgage loans, or those used for purposes other than home improvements.
Home Loss is Still Possible
Tax liability and debt forgiveness is good, but Chapter 7 does not prevent a borrower from losing their home. When one enters into a mortgage, they agree to use the home as collateral. Chapter 13 allows the borrower to pause the lien while payments are caught up. Chapter 7 forgives debt but it doesn’t lift the lien, and it cannot stop foreclosure.
Even if it is not possible to keep the home, borrowers can click for additional info on how bankruptcy can help them get out from under a mountain of tax liability or mortgage debt. A Bankruptcy Lawyer in Portsmouth VA can help a debtor get back on their feet, and it can help them put money aside for future tough times.
