The Subprime Mortgage Crisis of 2008 was one of the worst financial crises of recent history. The shameful actions of the banking institutions and credit agencies led to massive mortgage defaults by average consumer families. If you are facing foreclosure or a trustee’s sale, you still have hope. There are options. No one wants to lose his or her home. The attorneys at Tran Bankruptcy Law have written this two-part blog on how bankruptcies can help in a foreclosure. The first part explores how Chapter 13 can benefit you, and the second part examines how a Chapter 7 can help.
The bankruptcy process was designed to help consumer debtors out of financial straits such as a foreclosure. Both Chapter 13 and Chapter 7 bankruptcies offer its own benefits, depending on your own specific situation.
Chapter 13 Bankruptcy
Filing a Chapter 13 bankruptcy can help save your home by giving you time to make up your missed mortgage payments, making your mortgage more affordable by reducing your overall debt load, and may allow you to eliminate a second or third mortgage. Furthermore, if you ultimately decide to forego your house, Chapter 13 can substantially delay your move-out date.
Repay Your Mortgage Arrears in a Payment Plan
In a Chapter 13 bankruptcy, all your debts are lumped together into a single debt administered by the Court, and you make plan payments toward the satisfaction of your debt. Depending on what your monthly income and necessary expenses are, you may not have to pay back your unsecured debts. But since your mortgage is a secured debt, all your arrears would be totaled and divided into monthly installment payments, which you will have to pay on. However, you will not accrue any more interests or penalties during the duration of your payment plan, which is typically three to five years.
Reduce Your Overall Debt Total
Owing on debt is not uncommon in America. With credit companies constantly bombarding you with offers of credit, sometimes with tactics border-lining on fraud and deception, it is no surprise that according to the Federal Reserve, there was an average of $43,874 of debt for every man, woman, and child in 2010. Filing a Chapter 13 would allow you to use your monthly disposable income to repay part of this unsecured debt over a three to five year period. Any unsecured debt remaining at the end of your plan would be discharged.
Stripping Your Second or Third Mortgage
Some homeowners have their homes encumbered by a second or third mortgage. One of the greatest benefits of a Chapter 13 is that you might be able to avoid the second and third mortgage. for example, you can avoid the second mortgage if the value of your home is worth less then the first mortgage balance. The Court will reclassify your second as unsecured debt. By doing this, your second mortgage is treated as any other unsecured creditor. If you complete your Chapter 13 plan, your second mortgage will no longer have a lien on your home.
Delay the Foreclosure Process
Filing bankruptcy will delay foreclosure proceedings. When you file a bankruptcy, the Court implements an automatic stay on all collection proceedings. What this means is that the Court prevents any creditors from taking collection actions. Foreclosures are a form of collection by the mortgage holder to collect on what is due. Therefore, when you file bankruptcy, creditors must stop the foreclosure. If you propose a feasible monthly payment plan, then you can delay the foreclosure by following through with the plan.