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Avoiding foreclosure with Chapter 7 or Chapter 13 bankruptcy

Bankruptcy is a sure-fire way to avoid foreclosure. However, one type of bankruptcy may be better than another, depending on certain factors.

If you face the threat of foreclosure because you have fallen behind on your mortgage, it may seem like a helpless situation. However, no matter what you have been told by your lender, it is not a given that you must give up your house, as there are several ways available to you to avoid the foreclosure process entirely. For many, the surest way of keeping their homes is to file bankruptcy. Although both types of consumer bankruptcies help in some way, one may be more advantageous for you than another, depending on your situation.

Chapter 7

One approach to avoiding foreclosure is to file Chapter 7 bankruptcy. As soon at it is filed, the automatic stay becomes effective, which stops the foreclosure proceedings, as well as other debt collection attempts, such as garnishments, lawsuits and collection phone calls.

However, in Chapter 7, the automatic stay's effect on foreclosure does not last for the entire bankruptcy process. If you do not bring your mortgage current within two or three months, your lender may ask the bankruptcy court to lift the stay, allowing foreclosure proceedings to continue.

This is not to say that Chapter 7 cannot help with foreclosure. On the contrary, Chapter 7 eliminates most other types of debt, allowing you to devote more of your financial resources towards becoming current on your mortgage. Because of this fact, Chapter 7 is generally better for those that are struggling with their mortgages because of other financial obligations.

Chapter 13

Chapter 13 is the other type of bankruptcy available to most individuals. This kind of bankruptcy is a better fit for those needing extra time or help becoming current on their mortgages. Like Chapter 7, the automatic stay becomes effective upon filing Chapter 13. However, unlike Chapter 7, your lender may not foreclose on your house later in the process, as long as you continue to fulfill your duties under the repayment plan.

Under the repayment plan, you pay your overdue mortgage debt in monthly installments over a three to five-year period. Since the installments are paid over a longer period, this allows your monthly payment to be within your budget. By the time that the plan has ended, you have caught up with your delinquent mortgage payments and are free of most other debts, giving you a fresh start.

If you are struggling to pay a second mortgage, Chapter 13 may also help. If your second mortgage along with your first mortgage is worth more than the value of your home (a.k.a. underwater), Chapter 13 may be able to eliminate your obligation to repay your second mortgage, freeing up precious income for your other debts.

Seek legal help

For many, bankruptcy is a powerful means of avoiding foreclosure. However, despite this fact, it may not be the right move for you. To find out more about your legal options, speak to a bankruptcy attorney. The experienced attorneys at Bowe, Lisella & Bowe can assess your situation and suggest the best way to ensure that your home remains in your hands.

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