Although both types of bankruptcy may potentially help with foreclosure, one may be better over another.
If you have fallen behind on your mortgage, you will likely face one of the scariest possibilities that debtors can face-the loss of your home. Although the situation is dire, you are not powerless. Filing bankruptcy can help your situation. However, one type may be preferable over another, depending on your circumstances.
If you are having problems keeping up with your mortgage because of other debt, Chapter 7 may be ideal for you. Once you file Chapter 7, the automatic stay immediately pauses all collection attempts (i.e. lawsuits, collection calls, etc.) as well as foreclosure proceedings. During this time, you have the opportunity to examine your financial situation and plan your next move without outside pressure.
Although the stay is a powerful tool, its effects do not last forever. If you have not brought your mortgage current during the stay, you may once again face foreclosure after it ends. Fortunately, since Chapter 7 eliminates most of your unsecured debt, such as credit cards, medical bills and personal loans, you will be able to devote more income towards becoming current on your mortgage without having to worry about other financial obligations.
Chapter 13 may be a better option
If you are very behind on your mortgage, Chapter 13 may be a better solution. In this type of bankruptcy, you immediately receive the benefit of the automatic stay. However, instead of being temporary, its protections last throughout the Chapter 13 process.
During Chapter 13, your mortgage debt is consolidated into a payment plan. Under the plan, you make monthly payments towards your mortgage arrearages over a three to five-year period. The amount you must pay is affordable, as it is determined by your disposable income. Under the bankruptcy laws, as long as you continue making payments under the plan, your lender may not foreclose. Once you have made all agreed payments under the plan, the Chapter 13 process ends. At this point, you are current on your mortgage and free of most other types of debt, allowing you a new financial start.
If you are struggling with a second mortgage, Chapter 13 is also beneficial. If you are underwater with your second mortgage, Chapter 13 treats this debt as unsecured. Since it is unsecured, Chapter 13 eliminates your obligation to repay it during a process known as “lien stripping.” Once the process is completed, you no longer must repay your second mortgage.
Speak with an attorney
Both types of bankruptcy have their own advantages and disadvantages when it comes to fending off foreclosure. Before proceeding further, it is important to have advice from an expert. An experienced bankruptcy attorney can analyze your unique circumstances and recommend a debt relief solution that would be the most advantageous for you.