Role of Bankruptcy in stopping a foreclosure
Filing for bankruptcy is a sure shot way to stop your house from foreclosure. Not only will it stop the immediate sale of your abode, but also help you to catch up on your due payments along with managing your other debts quite efficiently.
An automatic stay will be triggered as soon as you file for Chapter 7 or a Chapter 13 bankruptcy. This will prevent the creditors from practicing various collection activities like repossession, eviction, court case, collection calls, and even foreclosure. However, this may not be true in few circumstances.
In today’s times, bankruptcy petitions can be easily filed online. Therefore, if the debtor files for bankruptcy before the scheduled foreclosure sale, all sales done by the bank will be nullified under the bankruptcy filing. Chapter 7 bankruptcy allows a temporary relief as the automatic stay is lifted soon after the closing of the case (typically 3-6 months after the filing). On the other hand, Chapter 13 bankruptcy may fix the problem permanently.
Is it beneficial to file multiple bankruptcies to stop a foreclosure?
Many people try to take undue advantage of this automatic stay and file multiple bankruptcies to prevent the creditors from conducting a foreclosure. Due to this, certain strict modifications were made by the legislature in the bankruptcy laws so that the borrowers can no more misuse the provision of the automatic stay that comes with filing a bankruptcy.
The working of the current system includes:
- If a new bankruptcy case is filed within a year of the previous case, the automatic stay will be in effect only for 30 days unless it is extended by the court.
- In case of two pending cases in the previous year, the automatic stay will not go into effect without the court’s agreement.
Benefits of Chapter 13 in a Foreclosure
The most rewarding benefit that you get by filing for bankruptcy under chapter 13 is that you can catch up on all your pending mortgage payments. You can do this by spreading the arrears over a repayment plan between three to five years as per your convenience. This will help in getting rid of all your mortgage by the end of the repayment period. However, you need to continue paying the monthly house payment.
Some additional benefits of Chapter 13 bankruptcy include:
- Other secured debts with past due payments, such as car loans, can be included in the repayment plan and the balance can be stretched out over a longer period, in case it’s necessary. For old loans, the value owed on the vehicle and also the rate of interest may reduce.
- In Chapter 13 bankruptcy, your family income and living expenses will decide the amount of unsecured debts (such as personal loans, medical debts, credit card loans, etc.) that you have to pay. In some cases, you may not have to pay anything at all.
- You can even include and pay the fees of your bankruptcy attorney through your Chapter 13 repayment plan.
The only drawback of this bankruptcy is that it needs all the priority and secured debts to be paid in full. Thus, you should opt for this chapter of bankruptcy only if you have sufficient income to complete the repayment plan.