Filing for bankruptcy is a big decision, but it can be an effective way to deal with a foreclosure. Filing for personal bankruptcy can help you buy the time you need to catch up with mortgage payments while also allowing you to stay in your home.
If you find yourself in this situation, here are two types of bankruptcy that you'll want to become familiar with.
Chapter 7 Bankruptcy: Filing for a chapter 7 bankruptcy will place an immediate hold on all creditors seeking money from you, including your bank or mortgage lender. You'll have to qualify for chapter 7 bankruptcy by taking a test, but the vast majority of people who apply are approved. Unfortunately, a chapter 7 bankruptcy only buys you an unspecified, often short amount of time. Lenders can petition a court to have the hold removed so that they may take up foreclosure proceedings once again. If you think you only need a short time to get your finances in order, chapter 7 bankruptcy may be a good option.
Chapter 13 Bankruptcy: Most of the people looking to avoid a foreclosure choose to file for chapter 13 bankruptcy. In addition to providing an automatic hold on all creditors and lenders, chapter 13 bankruptcy allows you to work out a payment plan for your debts with your lender over the next 3 to 5 years. Once you work out a plan with your lender, it cannot be altered, making it a great way to catch up on your debts while keeping your home. At the end of the payment cycle, you should be back up to date with your mortgage payments.
It's important to consider all of your options when dealing with a foreclosure, but if it's right for you, filing for bankruptcy can help stop a foreclosure and allow you to keep your home while you work out a way to pay off your debts.
