Filing for Bankruptcy to deal with Foreclosure
Filing for Bankruptcy may be an option to deal with impending foreclosure proceedings if all other methods of avoiding foreclosure have failed/ not yielded expected results.
Bankruptcy may not absolve you from the debt you currently owe to your lenders but it can give you some additional time to arrange for payments to re-claim your property (or) enable you to redistribute the missed mortgage payments/interests on a more lenient terms and on a long term basis, which one might be able to pay to keep their property.
It should be noted however, that in-spite of filing for a bankruptcy lenders might still be able to carry on with the foreclosure sale by getting an order from the bankruptcy court. The court may also allow the bank to carry on with the foreclosure sale if the foreclosure notice was given prior to the filing for bankruptcy.
There are two types of bankruptcy – Chapter 13 Bankruptcy and Chapter 7 Bankruptcy, that can be filed during impending foreclosure proceedings.
A Chapter 13 Bankruptcy can be filed to clear the backlog payments (and interests) over a longer term (like five years), as determined by the borrower. But the current and future mortgage payments may still be required to be made.
A Chapter 7 Bankruptcy can be filed to halt the foreclosure proceedings for a few months and it can be useful in case one can arrange for the funds through some source within that period. Also, one may not be required to make any mortgage payments during that period. A borrower can expect to get 2 – 6 months of time but this generally depends on individual cases.
Filing for Chapter 7 bankruptcy may still help getting rid of secondary debt on the property and any loans on home equity. Of course, there are restrictions on the type of property (including jewels) that one can hold, if bankruptcy is approved.
Also, one must verify if they are eligible for qualifying for bankruptcy. For example, if the gross income of the borrower for six months prior to the filing for bankruptcy is more than the median income for similar sized household in a state, they may not be eligible for Chapter-7 bankruptcy. They may still be eligible for Chapter-13 bankruptcy.