Have you had to miss paying other bills so you could pay your home mortgage? Or, are you behind on your mortgage payments despite everything else you do to make ends meet? Do you live in fear that you may lose your home to foreclosure?
You do not need this stress. Filing for bankruptcy offers many benefits to protect your home. Here are 3 ways bankruptcy could help.
Stopping Foreclosure on Your Home
If you are so far behind on your mortgage payments that foreclosure is imminent, filing bankruptcy could stop the process. This is possible through bankruptcy’s “automatic stay”.
The automatic stay is a legal injunction that goes into effect as soon as a person files bankruptcy. The purpose of the automatic stay is to stop creditors from all collection actions during the bankruptcy process. This includes foreclosing on a debtor’s home.
The period of an automatic stay depends on the type of bankruptcy you file.
Allow You to Catch up on Mortgage Payments
Filing bankruptcy could give you time to catch up on your mortgage payments. The time you have to catch up and how you can do it depends on the type of bankruptcy you file.
If you file for Chapter 7 bankruptcy and are not too far behind on your mortgage, you could catch up on your mortgage payments through a forbearance agreement.
A forbearance agreement is a negotiation worked out between you and your mortgage lender to allow you to catch up on your payments. A typical forbearance agreement gives you a specific amount of time (usually a few months up to a year) to get current on your mortgage by making extra payments.
Since most if not all your other debt gets discharged (“written off”) during chapter 7 bankruptcy, you should have a freer cash flow to make these extra payments.
If you file for Chapter 13 Bankruptcy, your debts will get reorganized and you will pay them through a bankruptcy court structured repayment plan. The amount you pay through your repayment plan depends on your financial situation. You could pay a reduced rate on your debts.
If you are behind on your mortgage, the arrearages you owe could get added to your bankruptcy repayment plan. This means it would stretch the amount you owe out over the duration of your repayment plan (3 to 5 years). You would still need to make your regular mortgage payments each month, but you could catch up on the arrearages over time.
Protect Your Home Equity
A disappointing aspect of foreclosure is that you will lose any equity you may have in your home. But, you can almost always protect the equity you have in your home through bankruptcy.
Chapter 7 bankruptcy could protect your equity if the amount of the equity is no more than your applicable homestead exemption. The amount of your homestead exemption is based on state or federal law, depending on your state. If your equity is larger than your homestead exemption, then a Chapter 13 bankruptcy could help protect it. You may have to pay some of the equity to creditors through a bankruptcy repayment plan. How much you pay would depend on your financial situation.
Regardless of which type of bankruptcy filed, you could get to at least keep some of your equity whereas with foreclosure you lose it all.
Getting Help Filing Bankruptcy
If you are struggling with paying for your home, bankruptcy could be beneficial to you. But, if and how it can benefit you depends on your financial situation and complex bankruptcy laws.
You need an experienced bankruptcy attorney to guide you through the process and help you get the best benefits from your bankruptcy case.
Brock & Stout’s bankruptcy attorneys have over 25 years of experience helping clients get a financial fresh start. Contact us today for a free evaluation of your financial situation to see if we can help you ease your burdens.