Bankruptcy comes in several flavors. Each bankruptcy “chapter” has its own advantages and disadvantages. What type of bankruptcy is best for foreclosure? Read on and I will tell you.
Bankruptcy Stops Foreclosure
A bank starts foreclosure proceedings when a borrower defaults on the terms of their home loan. Each lender is different, but getting past 90 days late on a mortgage puts the borrower in the danger zone.
In order to prevent a bank from selling a home at a foreclosure sale, the borrower must bring their mortgage account current. This usually means paying the missed mortgage payments, plus penalties, interest, and sometimes even attorney’s fees. This can be a substantial amount of money. Not everyone can just write a check to bring the mortgage account current.
The good news is that all types of bankruptcy halt foreclosure proceedings. This means that bankruptcy is an effective tool to stop a foreclosure. What happens next depends on the type of bankruptcy being filed.
Chapter 13 Bankruptcy is Best for Foreclosure
Filing Chapter 13 bankruptcy stops a foreclosure sale dead in its tracks. That is just a temporary solution to a much larger problem. Chapter 13 has a borrower covered with a long-term solution as well.
In Chapter 13 bankruptcy, a debtor repays some or all of their bills over time. Included in the list of debts that must be repaid in full during a Chapter 13 is mortgage arrears.
Mortgage arrears is the fancy name for the amount of money a borrower must repay to bring their mortgage account current. Most mortgage companies will not let a delinquent borrower repay their arrears over time. Pay up, or get out, is what the mortgage companies say.
Chapter 13 bankruptcy allows a delinquent borrower to repay their mortgage arrears over time. Up to 60 months, in fact. Spreading mortgage arrears payments out over 5 years is a huge benefit to a borrower that cannot come up with the full payment in a lump sum.
Chapter 13 is a tricky bankruptcy to get right. When done correctly, Chapter 13 is a very powerful tool. Saving a home from foreclosure is just one benefit of Chapter 13 bankruptcy.
I have helped delinquent homeowners all over Northern California save their homes from foreclosure with Chapter 13 bankruptcy. Please call my office at (916) 333-2222 to discuss your bankruptcy options.