By Victoria Knight
Greater numbers of people are looking for ways to save their homes from going into foreclosure. The housing market and over-extended borrowers have created the perfect storm, leaving many people trying to save their homes. Many people look to consolidation, debt management, finding good money market rates for borrowing and other means to try to free up monthly income. Sometimes the debt is still too much, house payments get missed and then the notices start arriving that foreclosure proceedings have begun. Understanding how bankruptcy can affect the foreclosure process is key to figuring out what avenue works best for you.
For most people, there are two types of bankruptcy. The one that most people think about is Chapter 7. In a Chapter 7 bankruptcy, all debts are frozen while reviewed by a court. The court decides what debts can be dismissed and what assets must be turned over to satisfy other debtors. The most common bankruptcy type that is actually filed is Chapter 13. Chapter 13 bankruptcy allows the borrower to make payments to the debtors. It is a way of trying to stop legal action and regain control over the financial situation. Both types of bankruptcies have the desired effect of stopping bankruptcy, but there are key differences.
When a person files for bankruptcy, all legal action and collections are stopped by a ‘Stay’ order. This is a court order that does not allow creditors to pursue further debt collection or legal action against the borrower. This order is what stops foreclosure. The lender must appeal to the court to have the Stay order lifted. It is important to remember that you are living on borrowed time during the period of the stay order. It is during this time that you must make arrangements for your home.
Chapter 7 can allow people time to come up with the money to pay back the arrears. This will stop all foreclosure proceedings, because the debt has been paid. The stay order for a Chapter 7 bankruptcy will last a couple of months. That may provide the borrower enough time to get their financial situation in order, make up missed payments, and have other debts removed through the court. In most cases, the lender can go to the court at any time to appeal for the stay order to be lifted.
Chapter 13 allows people a way of making payments and come up with a payment plan for the arrears. If your house is listed on the Chapter 13 bankruptcy papers, then they cannot foreclose on your property. The borrower can try to get the stay order lifted, if payments are missed. It is important to understand that you must make payments while in chapter 13, or you can still face foreclosure.
There is a great deal of variation between state bankruptcy laws. What is and what is not allowed can become very complicated. Remember that it is best to consult with an attorney to advise you on the legal process of bankruptcy. Decide if you want to try to keep your home and work with a lawyer to come up with a plan. While bankruptcy may stop a foreclosure process, it only delays it for a while. Working with a qualified attorney will give you the information you need to make that delay work for you.
About Victoria Knight
Victoria is a finance informant and blogger for Ratelines.com, where you can find great CD rates and credit card offers.
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