Foreclosure can be one of the most devastating financial experiences. After years of saving to afford a home and many more years of investing in the property, homeowners can lose their equity due to non-payment.
Until they have fully repaid the principal balance owed on the mortgage and any interest that they have accrued, their home is vulnerable as the collateral property for the mortgage. People who have missed four consecutive mortgage payments are at imminent risk of foreclosure.
Those who have missed more than one payment and those receiving communication from their lenders about the possibility of foreclosure may need to take immediate action to protect their homes. Filing for bankruptcy can help assist those worrying about foreclosure in several key ways.
1. Delaying foreclosure proceedings
Bankruptcy can take anywhere from a few months to multiple years to complete. Homeowners may need relief before they are eligible for a discharge of their debt. Thankfully, the courts provide an automatic stay to prevent continued collection activity on the same day that an individual files for bankruptcy.
Creditors have to stop calling and sending letters. They may also need to dismiss pending lawsuits, including preliminary foreclosure hearings. The ability to temporarily stop collection efforts can give people an opportunity to assess their circumstances and plan.
2. Facilitating modifications
Lenders who know that homeowners are in trouble may work with them. Foreclosure can be quite expensive for mortgage companies, and they may take a loss when selling a foreclosed property later.
They may agree to discuss modifications with homeowners who file for Chapter 7 bankruptcy. There is even more incentive to cooperate regarding modifications in a Chapter 13 bankruptcy case that involves a multi-year repayment plan. Making adjustments to the terms of the mortgage can help the buyer catch up and keep their mortgage in good standing after the bankruptcy.
3. Eliminating financial pressure
After a successful bankruptcy filing, the homeowner can discharge certain eligible debts. Medical debts and credit card balances that may have consumed a large portion of their money each month may no longer require repayment after bankruptcy. The elimination of certain debts through the bankruptcy discharge can make it easier for people to maintain their budgets and make their mortgage payments in full every month.
Reviewing current financial challenges can help homeowners evaluate personal bankruptcy as a potential means of preventing foreclosure. Personal bankruptcy may make all the difference for people who are at risk of losing their houses.