Foreclosure and Bankruptcy

A workout is not always possible--some homeowners who are behind in their mortgage payments and deeply in debt need to consider bankruptcy. Bankruptcy cannot discharge the debt to the lender, but it can provide time for you to reorganize your finances.

Chapter 13 of the Bankruptcy Code is designed to stop foreclosure and protect other assets. The moment that you file a bankruptcy petition with the federal bankruptcy court all debt collection activity is stopped. The automatic stay prevents your lender from moving forward with foreclosure. It cannot contact you regarding any missed payments nor discuss with you any workout arrangements.

In order to qualify for a Chapter 13 bankruptcy you must be a wage-earner. You can file for Chapter 13 bankruptcy only if you have a steady source of income.

A Chapter 13 bankruptcy establishes a plan for fixed payments over a number of years. This plan effectively refinances your debt and allows you to meet your living expenses before paying off creditors.

The fixed payments are calculated to pay off your pre-bankruptcy debt, including back house payments at an affordable rate. You need to keep up with your regular house payments while you make your plan payments.

The bankruptcy court may allow you three or more years to catch up on your debt. For the plan to work, payments must be kept current or the court protection will be withdrawn and the lender can resume foreclosure proceedings.

Unfortunately, over two-thirds of Chapter 13 filers cannot follow their plans and make their scheduled payments. A missed plan payment might follow an unexpected event, such as a divorce or serious illness.

Both prior to and after bankruptcy you need to be proactive about protecting your credit. Your bankruptcy attorney may be able to help you. The Lexington Law Firm has a national reputation for repairing their client's credit scores and is very affordable. You can learn more by visiting Repair Your Credit today.

Which is better, foreclosure or bankruptcy?

Surprisingly, a foreclosure appearing on your credit report may be worse than a Chapter 13 filing. After successfully completing a Chapter 13 plan, you might be in the position to refinance your home or sell and purchase a new home.

A bankruptcy is not a do it yourself project. You should find a bankruptcy attorney who can develop a plan and file the proper papers. Many caveats and special rules apply to bankruptcy and only an experienced attorney can advise the proper course of action. The cost of attorney is minimal compared to the cost of losing your home.